Salary and Commission Requirements for Commission Based Workers

You may already know that the Fair Labor Standards Act has special rules for how much tipped employees need to be paid, and how their pay requirements differ from those employees who may receive just a straight hourly wage.

But there is another category of wages, or another way some people are paid: commissions. Commissions are not tips, but they also are not regular like hourly wages. So how does the FLSA treat commissioned employees-if you’re a commissioned employee, what are your rights under the FLSA?

Commission Employees are Exempt

Technically commissioned employees are exempt under the FLSA—but only if they are paid a certain minimum amount and meet certain parameters.

The first requirement is that the commissions that the employee makes must, when divided hourly, come to, or be more than, 1.5 times the federal minimum wage. At the current $7.25, that comes to a minimum of $10.88 per hour.

The other requirement is that more than half of what the worker makes must be commissioned. So, if an employee makes a commission here or there, the exemption does not apply, and the employee still must be paid the FLSA required minimum wage (as well as required overtime).

Retail or Service

There is another catch, that many employers use to try to get out of paying commissioned employees’ overtime or minimum wage: To be exempt, the employee must work in an industry that is, according to the statute. A “retail or service establishment.”

There is no real definition of what this means. There is some commonsense guidance. It is possible that businesses that serve or sell to other businesses may not be retail. Businesses that manufacture goods and which wholesale items to other establishments may not qualify.

There is some authority that these terms mean that the business sells to or services the general public.The Department of Labor has defined the terms as any business that sells to or serves the “everyday needs of the community.”

Unfortunately, many of the regulations and rules that do exist that define what a retail or service establishment pre-date the rise of ecommerce.

The business generally should sell in small quantities to the general public and should not be involved in the manufacturing of whatever it is that they sell.

There is also an exemption for being what is known as an “outside salesperson,” which is someone that spends more than half of his or her time generating those commission-based sales. These workers do not have to be paid the FLSA required minimum and overtime wages.

California Requirements

California has some extra requirements to protect employees paid by commission. Commissions must be paid to workers at least two times every month. The employer must tell the employee, in writing, how his or her commissions are calculated.

Remember that these exceptions for commission-based employees, are only some of many exceptions and exemptions that exist as part of the FLSA.

Contact the San Jose employment lawyers at the Costanzo Law Firm today.

Sources:

nolo.com/legal-encyclopedia/getting-paid-commission-california.html#:~:text=Fair%20Labor%20Standards%20Act%20and%20Commission%20Payments&text=That%20means%20employees%20must%20be,an%20employee’s%20overtime%20pay%20rate.

dol.gov/general/topic/wages/commissions