Working on Commission – The Basics
Some employees work on commission, either in addition to a salary or hourly wage, or instead of a fixed salary or wage. In most cases, a commission is a sum of money that is paid by an employer to an employee, usually in a sales position, who earns the commission by selling a certain amount of goods or services to a third party. A position based wholly or partially on commission is not required by federal or state law, but is created solely as an agreement between an employer and employee. However, there are some federal and potentially some state laws that may govern and/or affect the payment of sales commissions to certain employees.
There are various federal regulations that set forth the types of employment that may be commission-based, the calculation of legally earned commissions, how to pay overtime compensation to a commission-based employee, the records that an employer must keep regarding the payment of commissions, and the timeframe in which commissions must be paid to an eligible employee. For instance, the Fair Labor Standards Act (“FLSA”) requires that employers must pay employees who work based on commission at a rate that is at least the federal minimum wage, currently $7.25 per hour. Likewise, the FLSA mandates that employees who work in excess of 40 hours per week must be compensated for at least one and one-half times their normal pay rate, which includes the payment of any commissions, unless the employee works for certain retail or service establishments that meet the conditions for an exemption.
As the methods for calculating commissions can be complex, particularly when it comes to overtime pay, it is essential that both employers who pay employees on commission and employees in commission-based positions keep impeccable records in terms of the days and hours worked, as well as the commissions earned. These records may differentiate between employees who are exempt from being paid standard overtime rates pursuant to the FLSA, and employees who are non-exempt. Plus, these records can help resolve any disputes between employer and employee about unpaid commissions.
Similarly, whether you are an employee working on commission or an employer who pays employees on commission, it is wise to maintain written employment contracts and/or employee policies that govern the payment of commissions. The provisions of such contracts or employee policies that relate to commissions will give essential guidance in determining the outcome of any disputes between employer and employee in terms of the payment of commissions.
Finally, in the event of a dispute over an unpaid commission, an employee can contact the Wage and Hour Division of the U.S. Department of Labor in order to file a complaint against his or her current or former employer. The Wage and Hour Division is responsible for monitoring employers’ compliance with the FLSA and related laws in terms of employee compensation.
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