For RIAs, the salary-basis test is a payroll audit

For most employers, the Department of Labor's Fact Sheet #17G, published in December 2019, is background reading; for advisory firm owners, the salary-basis test at its center is a payroll audit in plain sight: whether a client associate or paraplanner is exempt from overtime follows job duties, not the title in the email signature.

The sheet starts with the familiar FLSA ground—most employees are due minimum wage and overtime at time and a half for hours over 40 in a workweek—then lays out Section 13(a)(1), which exempts bona fide executive, administrative, professional, and outside sales employees, plus certain computer employees, provided they pass a duties test and generally a salary test of $684 per week on a salary basis, with exempt computer employees allowed at least $27.63 an hour instead. Job titles decide nothing.

The salary-basis requirement is stricter than the number suggests: an exempt employee must receive a predetermined amount each pay period that cannot be reduced for variations in the quality or quantity of work, and the full salary is due for any week in which the employee performs any work, so deductions tied to the operating requirements of the business put the exemption at risk. In a firm where a paraplanner's hours swell with tax season and quarter-end reporting, that rule is easy to trip.

For client associates on base-plus-incentive plans, the sheet offers a planning tool: nondiscretionary bonuses and incentive payments, including commissions, can cover up to 10 percent of the $684 threshold when paid at least annually, keeping the exemption within reach as long as the bonus language is nondiscretionary and the annual true-up is documented.

A firm that treats 'salaried' as a synonym for 'exempt' is paying for convenience with the risk of a wage claim. An annual classification review, run on duties rather than payroll codes, is the cheapest insurance an advisory practice can buy.