Commissioned Salesperson Exemption

If you are a sales employee and earn commission, perhaps you have been told you do not qualify for overtime. If so, that might be true. Both federal and state law require employers to pay “non-exempt” employees a minimum wage and overtime pay. One category of so-called exempt employees includes “Commissioned Salespeople.” Although a Commissioned Salesperson is a narrow category, employers tend to assume that any sales employee qualifies. As a result of employer’s mistakes, many employees miss out on the overtime pay to which they are entitled.

The Fair Labor Standards Act (“FLSA”) is the federal law that governs the minimum wage and overtime pay. It is important to note that an exemption is not based on the employee’s job title. An employer cannot exempt a sales person just by calling that sales person a Commissioned Salesperson. Instead, the exemption is based on the salesperson’s substantive responsibilities and pay.

In order to fall under the federal “Commissioned Salesperson” exemption, an employee must meet each of the following requirements:

• The employee must be employed by a retail or service establishment;
• The employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which the employee has worked overtime hours;
• More than half the employee’s total earnings must consist of commissions.

The California Labor Code’s definition is largely similar, but operates differently. Both California and federal law exempt employees whose regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek in which the employee has worked overtime. Federal law allows employers to consider commissions paid in one pay period to subsequent pay periods in order to calculate the employee’s pay rate. But California does not allow this. In California, the exemption only applies if the employee earns one and one-half times the rate of pay in each pay period. This effectively makes it harder for California employers to exempt salespeople and gives salespeople more opportunities to earn overtime.

The rules regarding the Commissioned Salesperson exemption are confusing. So it is not uncommon for employers to misapply the exemption. Many employers assume that any employee who works in sales falls under the exemption, but this is not true.

If you work in sales and believe your employer has improperly denied you overtime pay--you might be right. An experienced employee misclassification lawyer can help you collect the overtime pay you have earned. Contact the skilled attorneys at Nassiri Law Group, at (949) 375-4734 to schedule a free case evaluation.