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Overtime Pay of Commissioned Sales Employees

Generally, unless an employee is exempt, he or she is entitled to overtime pay. The default is rule is that overtime is calculated at 1.5 times an employee’s regular rate of hourly pay, or “time and a half,” for each hour worked beyond 8 hours per workday or 40 hours per workweek.

For salespeople, comission pay exemption may apply. However, the exemption applies only to employees who are paid on a commissioned basis who:

  • Earn at least one-and-a-half times the minimum wage,
  • Earn more than half their income in the form of commissions, and
  • Work in the mercantile industry (which includes retail jobs), or work in certain professional, technical, clerical, mechanical, and similar occupations.

The commissioned sale exemption only exempts employees who satisfy all three conditions during a pay period.

This means that if an employee earns less than one-and-one-half times the minimum wage during a pay period, the employee must be paid overtime compensation for overtime hours worked during that pay period. Thus, if an employee is regularly paid an hourly wage in one pay period and a combination of hourly wages and commissions in the next pay period, the employee cannot be classified as exempt during the pay period in which no commissions are paid (and is therefore owed overtime wages for hours worked beyond 8 hours/workday and 40 hours/workweek).

This last rule is important for salespeople who do not collect a commission until the customer pays for a purchase. They may be exempt during pay periods in which customers pay for purchases but nonexempt during pay periods when they collect no commissions.

Finally, “commission” has a specific meaning under California law. An employer may designate pay as a “commission” when in fact it is something else. A “commission” is a payment that is based on the amount or value of the sale of the employer’s goods or services that are sold by the salesperson. “Commission” pay may be based on the number of sales made by the salesperson, the value of the sales, or the employer’s profit on the sales. As a contrast, a payment based on production of a good or rendering of a service is not a “commission” even if an employer calls it that. Thus, for example, a construction employee who receives a percentage of a fee charged by the contractor for performing the job is not being paid a “commission”. Similarly, a mechanic who received a percentage of a fee charges by the shop to a customer is not being paid a “commission”.

This may be considered advertising in some jurisdictions. It is intended to provide general information about legal developments and is not legal advice.

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