Some employees are paid on a straight commission basis or get commissions in addition to their regular hourly or salary pay. In either case, unless an exemption applies (see below), commissions must be included when determining the regular rate of pay for overtime purposes. Commissions are added to the employee’s other earnings for the week, if any, then this total is divided by the total hours worked to determine the employee’s regular rate to be used in the overtime calculation.
Example Overtime Pay Calculation if paid Commission only
- Weekly Commissions = $850
- Total Hours = 50
- Regular rate = $850 / 50 hours = $17 per hour
- Commission Pay = $850
- Overtime Pay = $17 x .5 x 10 hours = $85
- TOTAL Weekly Pay = $935
Example Overtime Pay Calculation if paid Hourly plus Commissions
- Hourly Rate = $15 per hour
- Weekly Commissions = $100
- Total Weekly Hours = 50
- Regular rate = $15 x 50 hours = $750 + $100 commissions = $850 / 50 hours = $17 Regular Rate
- $17 x 40 hours = $680 Regular Pay
- $17 x 1.5 x 10 hours = $255 Overtime Pay
- TOTAL Weekly Pay = $935
Some payroll systems may show the breakdown of pay as follows:
- Hourly Pay = $15 x 50 hours = $750
- Commission Pay = $100
- Overtime Pay = $17 (regular rate with commissions included) x .5 x 10 overtime hours = $85
- TOTAL Weekly Pay = $935
For further discussion, see Commission Pay Should be Included in Overtime Pay Rate – Claim Field Service Reps.
Exemptions
Some commission-based jobs may be exempt from the overtime law and not entitled to overtime pay. Two different overtime pay exemptions may come into play for employees who are paid commissions.
Commission Sales Exemption, commonly referred to as the 7(i) Exemption
For this exemption to apply to a position, 3 conditions must be met:
- the employee must be employed by a retail or service establishment, and
- 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 overtime hours are worked, and
- more than half the employee’s total earnings in a representative period must consist of commissions.
Outside Sales Exemption
For this exemption to apply to a position, the following tests must be met:
- The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
- The employee must be customarily and regularly engaged away from the employer’s place or places of business.
https://www.overtime-flsa.com/overtime-pay-laws-for-inside-sales-employees/
