In order for an employee to qualify as “exempt” from overtime pay as a commissioned salesperson, the main test that must be met is the employee MUST make more than 50% of their wages in the form of “commissions”. This test is not as straightforward as it might sound at first.

What are “commissions”?

Many employees receive what their employers call “commissions” as part of their wages each pay period, but few give thought to what this term actually means.

Under California law the term has a specific definition. It means wages an employee receives that are calculated as a percentage of the purchase price of the good or service sold.

So, for example, if you receive a set amount of money for each item you sell, no matter how much you sell it for, these wages are NOT commissions under California law. These types of wages are considered along the lines of a “bonus” in California, not “commissions”.

So, any wages an employer calls “commissions” that do not meet this test cannot be counted towards the 50% commissions threshold.

If a salesperson is paid a base amount plus these types of “commissions,” that employee is almost certainly entitled to overtime pay.

How is the 50% measured?

It is not totally clear under California law what time period is used to measure whether an employee makes more than 50% in commission pay.

Arguably the measurement is week-to-week, so an employee may be considered “exempt” one week and “non-exempt” the next.

The representative period likely depends on the sales-cycle of a particular industry, but if your commissions dramatically go up and down from one pay period to the next, there is at least a strong argument that you are owed at least some unpaid overtime.

Hopefully you are starting to see how complicated this exemption can get and how it can be very difficult for employers to squeeze their salespeople into its parameters.

Tags

Commissions | Minimum Wage | Wages : Overtime | Wages and Hours