The Basics – Paying Employee Commissions Part II

California law on paying commissions to employees

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Paying employees on a commission basis makes a lot of economic sense for employers and employees in many instances.  However, the fact that wages earned on commission are contingent upon numerous factors makes it fraught with labor law landmines and failure to properly pay employees’ commissions could constitute “wage theft” in California.  I previously discussed the basics of paying employees a commission.  In this part, we will examine a few more common issues with commission pay in California.

1.  What if a commission only employee earns no commission in a given pay period?

California labor law requires that every employer pay each employee at least minimum wage for all hours worked in a payroll period.  If the employee is a non-exempt employee and works overtime, s/he is also entitled to overtime pay, even if she failed to “earn” any commissions in that period.

2.  Are all commission employees exempt from overtime?

No.  The default rule in California is that employees are entitled to overtime pay and meal and rest breaks unless they fall under certain exemptions.  There is an exemption for an inside salesperson who meet all of the following criteria:

  • Be an employee covered by either Wage Order 4-2001 or Wage Order 7-2001;
  • Earn at least 1.5 times the current minimum wage; and
  • Commission wages make up more than half of the employee’s earnings.
The standard for exemption as an outside salesperson are as follows:
  • Employee is 18 years or older;
  • Customarily and regularly work more than half the time away from their employer’s place of business;
  • The time away from the employer’s place of business is spent selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.

Exemptions are construed narrowly and therein lies the risk for employers.  Do you have exempt employees?  Make sure your employees are accurately classified or you could be at risk for penalties, back wages, and attorney’s fees.

TIP:  My previous recommendation that terms of the commission agreement be in writing and discussed with and agreed to by the employee stands.  Additionally, employers should keep good records of when employees’ commissions are earned and review commission statements each pay period to ensure that earned commissions are timely paid.

Are you an employer with a commission plan that pays employees quarterly, requires employees to be employed at the time commission is paid, or pays only commissions earned at the time of termination?  If so, you may want a California employment attorney to review your commission plan and ensure that your commission plan does not violate California labor laws.  Feel free to contact us or call (949) 529-0007.

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In: Employment Law

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