Many large companies have their employees participate in a “pay-at-risk” compensation plan, which links a portion of employees’ incomes to the company’s performance. While this program means large paychecks for employees when the company is prospering, it also means that employees pay the price when the company is doing poorly. For example, CNBC reports that Caterpillar, which manufactures construction and mining equipment, expects as much as a forty percent reduction in employees’ pay from last year. While these kinds of payment plans may not be popular, they are in general legal, so long as they meet certain requirements. However, if employees’ pay does not meet those requirements, they may be able to bring a wage claim.
According to the article, ninety percent of companies have their employees participate in some sort of pay-at-risk plan, and up to twelve percent of the companies’ payrolls are tied to their overall performance. Depending on the employees’ pay grades, anywhere from eight to sixty-four percent of their annual salaries could be tied to a pay-at-risk compensation plan. This means that those employees’ paychecks can fluctuate quite a bit depending on their employers’ performance.
Are Pay-At-Risk Compensation Programs Legal?
While employees may not like the idea that their paychecks are dependent on their employers’ performance, this kind of payment plan is, in general, legal in the state of Washington. A pay-at-risk program is just a form of payment by commission, where the employee’s payment is a percent of the business’s profit. An employer may choose to pay its employees solely by commission, or may combine payment by commission with an hourly or salary rate of pay.
Under Washington’s Minimum Wage Act, an employer may pay an employee by any kind of method, including hourly, salary, commission, or a combination of those methods. The only requirement for these kinds of payment methods is that an employee’s salary for a pay period must equal at least the minimum wage for the number of hours worked in that period. That means that with a pay-at-risk compensation plan, so long as the employees’ overall salaries at least equal the minimum wage, this form of compensation program is legal under the Minimum Wage Act. However, if an employee’s salary under a pay-at-risk compensation plan falls below the minimum wage, then that employee would be able to bring a claim for unpaid wages.
Pay-at-risk and other forms of variable or commission-based compensation plans mean that workers prosper when their employers prosper. These payment plans also mean that employees earn less when their companies are going through hard times. However, no matter what, employees in Washington are entitled to at least the minimum wage for the work that they perform. If you have questions about variable or pay-at-risk compensation plans, feel free to contact an employment lawyer for more information.