Are commission-based employees entitled to overtime pay?

On Behalf of | Jun 2, 2020 | Firm News |

The U.S. federal government recognizes that employers pay commission to enhance the productivity of its workers. Some employees earn a salary and commission, while others work on a strictly commission-based basis.

Regardless of your situation, you are entitled, by law, to receive compensation that is at least equal to that of the federal or state minimum wage, whichever is higher. But what about if you work overtime?

To determine if full and partial commission-based employees should receive overtime pay, the U.S. Department of Labor Wage and Hour Division has set forth requirements for the Section 7(i) overtime exemption.

The first exemption requirement

This exemption applies only to service-based and retail establishments that derive at least 75% of their income from sales activities and that are in an industry the government recognizes as a sales environment. This is the first requirement.

The second exemption requirement

If a business can meet the first requirement, it must meet two others. The second is that the regular rate of pay for commission-earning employees is more than one-half times the relevant minimum wage for every hour worked during a week in which the employee worked overtime.

So, if you worked 44 hours in one week, and your hourly rate of pay did not add up to one-half times the minimum wage, your employer must make up the difference in earnings to ensure you make at least minimum wage, plus the appropriate amount of overtime pay.

The third exemption requirement

The third and final requirement is that more than half of the worker’s aggregate earnings during one representative period must come from commissions. Your employer has the right to set its own representative period, but it must remain consistent for all workers. The period can be one week, one month or even one year.

If your employer cannot clearly satisfy the three requirements for overtime exemption, the law entitles you to overtime pay as a commission-based employee.