The Fair Labor Standards Act (“FLSA”) requires most employers to pay commissions to commission employees and overtime (in addition to any commissions paid) for all hours worked in excess of 40 in work weeks. Commission employees are due overtime regardless of whether they are paid:
- Based exclusively on commission;
- Based on a combination of commission and salary; and
- based on a combination of commission and an hourly rate.
Commission employees typically owed overtime include sales representatives, inside sales positions, and outside sales representatives in the mortgage, insurance, securities and retail automobile industries.
Employers must pay at least minimum wage for all hours worked by commission sales employees. An employer may not “average” pay earned from commission sales over the course of employment to cover its minimum wage obligations during a particular workweek.
Commissioned Employee and Overtime: Outside Sales Exemption
Commission employees who perform outside sales work are owed overtime unless they are regularly and customarily engaged in sales outside their employer’s place or places of business. If you do not actually sell services or products to a customer outside of the office for at least two hours a week, this exemption likely does not apply to you. The following are generally not considered outside sales:
- Sales made made by mail;
- Sales made by telephone;
- Sales made through the internet; and
- Sales activities from an employee’s home.
However, if the above sales are merely incidental to in-person visits with clients, then the outside sales exemption may apply. If you have any questions about your overtime eligibility, give us a call at (214) 790-4454.
Commission Employees and Overtime – Retail Sales Exemption
Traditional retail and service establishments generally have no obligation to pay a commissioned employee overtime. Retail and service establishments are defined as establishments that obtain 75% of sales volume from goods or services. In order for the retail sales exemption to apply to a commission employee’s position, three conditions must be met:
- the employee must be employed by a retail or service establishment, and
- the employee’s regular rate of pay must exceed 1.5 times the applicable minimum wage for all overtime hours, and
- more than half the employee’s total earning in a representative sales period must consist of commissions.
Regulations require employers to maintain accurate employment records of hours worked each workday, each workweek, and earnings paid to employees. Without accurate records, the employer cannot prove that all conditions of the retail sales exemption apply. Additionally, tips paid to service employees by customers may never be considered commissions for purposes of the retail sales exemption.
The best way to discover your proper overtime status (exempt or non-exempt) as a commissioned employee is to contact an overtime attorney that regularly represents commissioned employees in overtime lawsuits. Many exemptions, including the outside sales exemption and retails sales exemption, are highly fact specific and require a careful application of facts to relevant law. Give our overtime lawyers a call for a free consultation to discuss the of the intersection between commission employees and overtime.
Commission Employees and Overtime. What’s at Stake? Alot.
Commission employees entitled to overtime must be paid 1.5 times the commissioned employees regular rate of pay for all overtime hours. An example if necessary to fully explain how to calculate overtime for a commissioned employee:
Commission employee (1) earns $100 in salary; (2) earns $300 in commissions; and (3) worked 50 hours during one workweek.
The employer should use the following calculation to determine overtime for its commission employee:
$400 (total compensation)/50 hours (hours worked)= $8/hour (regular rate of pay)
$8/hour (regular rate of pay) x .5 (overtime rate)= $4 per hour of overtime
$4 x 10 hours (amount of overtime)= $40 in overtime due for the week
This calculation is based on one workweek. Over a period of one year, the employer would have failed to pay the employee over $2,000. If that same employee filed an overtime lawsuit for 3 years of unpaid overtime, he could recover up to $12,480 due to the availability of double damages for some overtime violations. Confused? Call us at (214) 790-4454 to discuss your overtime eligibility or the complex law that applies to commission employees and overtime.