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Q&A: Does Earmarked Money Apply Towards the Minimum Salary Threshold?

Question:

We are a small company with 15 employees and therefore not required to offer health insurance. However, we give all employees additional money each pay period to use toward their health benefits. The amount is earmarked for this purpose on their paychecks but taxed like their regular income. Does this additional benefit money count toward calculating income for compliance with the new overtime rules and minimum salary threshold?

Answer: Ophelia, SPHR, GPHR, SHRM-SCP, one of our HR Pros says…

Since the additional amount is earmarked for the specific purpose of purchasing health insurance, the Department of Labor will likely consider the money to be a reimbursement, fringe benefit, or bonus, rather than part of the base salary (they have told us those line items don’t count toward salary). Therefore, I would not recommend counting it when calculating income for compliance with the overtime rule. The same would be true for other allowances, such as money to be used for transportation or cell phone service.

If you want to count the additional amount toward the FLSA salary threshold, I would suggest simply doing away with the earmarking. You could give the employees the same total compensation without indicating that a certain portion is for purchasing health insurance. The employee will receive the same amount of money, but you’ll avoid any kerfuffle with the Department of Labor. You are of course welcome to communicate to employees upon hire that the salary for the position has been determined by the cost of health insurance (or car or cell phone use) as a consideration.

Picture of Ophelia, SPHR, GPHR, SHRM-SCP

Ophelia, SPHR, GPHR, SHRM-SCP

Ophelia has held HR roles in the financial services, healthcare, IT, real estate, and telecommunications industries. She holds a Bachelor of Arts degree in Sociology and a Masters of Business Administration (MBA) degree with a concentration in Human Resources from Willamette University. A member of SHRM since 2008, Ophelia currently serves as the Director of College Relations for a regional Human Resources Management Association.

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