Key Takeaways

  • Commission employees must meet minimum wage and overtime requirements.

  • State laws may impose unique rules for commission-based workers.

  • Employers must keep detailed records of commissions and hours.

  • Commission workers may still be eligible for benefits and protections.

  • Seek help from labor agencies or the DOL if rights are violated.

While most businesses hire employees on a salary or wage basis, there are some industries where it is more common to hire commission-based workers. However, if you are thinking about hiring commission-based workers, you should be well aware of the labor laws that apply to them. 

Unlike hourly or salaried workers, commission employees have unique laws that regulate their pay structures, rights, and benefits. Knowing these laws helps both employers maintain compliance and employees protect their earnings and rights. Here’s a comprehensive guide to commission employee labor laws, covering key areas like minimum wage, overtime, benefits, and protections.

What Are Commission Employee Labor Laws?

Commission employee labor laws govern the rights, responsibilities, and protections specific to commission-based workers. A commission employee is someone whose earnings are largely determined by the amount or value of sales they generate rather than a set hourly wage or salary. This type of pay structure is common in industries such as real estate, car sales, and retail.

Commission-based compensation incentivizes employees to boost their productivity, but it also means that pay can vary significantly from one pay period to the next. As a result, commission employee labor laws provide essential protections to ensure fair treatment and minimum earning standards.

Key Legal Protections for Commission Employees

The main legal protections for commission-based employees focus on ensuring that they are able to earn at least the minimum wage, even if their pay structure differs from standard hourly or salaried workers. They may also be eligible for overtime pay (under certain conditions), and regulations around breaks, work hours, and deductions.

For instance, commission employees are protected from wage theft or unauthorized deductions from their earnings. Additionally, the commission agreements must comply with both state and federal laws, and employers must pay out earned commissions as outlined in the agreement terms.

Understanding Rights and Protections for Commission Employees

When it comes to commission employees, a common concern is whether the employee can earn a fair minimum earnings during a given work week. Fair Labor Standards Act (FLSA) requires employers to ensure that commission-based employees still meet minimum wage standards. This means that the percentage of commissions an employee can earn must meet the minimum wage set for that jurisdiction. If the employee is unable to earn enough commissions to meet the minimum wage standards during their work hours, the employer is responsible for making up the difference.

However, some commission employees, particularly those in roles classified as exempt under FLSA guidelines, may not be subject to minimum wage protections. It’s essential for employers to classify commission employees accurately to ensure compliance with minimum wage requirements.

Overtime Pay Eligibility and Requirements

The FLSA also mandates overtime pay for commission employees who work more than 40 hours per week, provided they meet specific criteria. Non-exempt commission employees are entitled to time-and-a-half pay for overtime hours. However, some commission employees—such as outside sales employees who primarily work outside the employer’s place of business—are classified as exempt from overtime protections.

It is the responsibility of the employers to keep accurate records of commission employees’ hours to calculate overtime correctly. In cases where an employee earns both hourly wages and commissions, overtime pay is calculated based on the total earnings, including commissions, for that pay period.

Breaks, Time Off, and Work Hours

While federal law does not require employers to provide breaks, some states have specific regulations around breaks and rest periods. For commission employees, the right to take breaks may depend on their classification and state law. Typically, commission employees are allowed to take unpaid time off, though their employers may have specific policies around how many days are allocated for vacation and sick leave.

Labor Laws on Commission Employees by State

Labor laws can vary significantly by state, with some states imposing additional requirements on employers of commission-based workers. For example, California has strict protections for commission employees, including minimum wage guarantees and requirements for written commission agreements. Texas and Florida, on the other hand, may have fewer state-specific requirements, adhering more closely to federal standards. In New York, commission-based employees must receive a written agreement detailing how commissions are calculated and paid. 

These examples underscore the importance of state-specific compliance for employers with commission-based workforces.

Department of Labor Regulations for Commissioned Employees

The U.S. Department of Labor (DOL) has specific guidelines on minimum wage, overtime, and recordkeeping that employers must follow. Non-compliance with these guidelines can lead to expensive lawsuits and legal complications. Below are some of the labor regulations that the DOL imposes on employers for commissioned employees. 

Recordkeeping Requirements for Employers

According to the DOL, employers are required to maintain records for commissioned employees, documenting hours worked, earnings, and the basis on which commissions are calculated. Not only is this law important for protecting commission employees and making sure they are receiving their rightful earnings, it also protects the employers in cases of wage disputes or audits.

Key DOL Guidelines for Commissions

The DOL mandates that commission-based pay structures align with the terms agreed upon between employer and employee. This includes timely payment of commissions earned and adherence to FLSA’s minimum wage and overtime requirements. Employers should clearly define commission structures in employment contracts to prevent misunderstandings or legal issues.

How Commission Impacts Employee Benefits and Protections

Salaried or hourly employees typically enjoy additional benefits on top of their monetary compensation. While these benefits vary according to the policies set by the employers, most salaried or hourly employees receive medical, severance pay and health insurance.  

In the case of commission-based employees, the policies around employee benefits and protections again depend on their employer, although in some cases state laws take more precedence. 

1. Eligibility for Health Benefits, Retirement, and Other Employment Benefits

As mentioned above, health benefits, retirement plans, and other employment benefits are generally based on company policy rather than legal requirements. That being said, some employers may offer some or all of these benefits to commission employees, though eligibility may vary based on the company’s policies.

2. Commission-Based Work and Unemployment Benefits

Commission employees who lose their jobs may still be eligible for unemployment benefits, depending on their state’s regulations. Unemployment benefits are calculated based on earnings, so commission-based pay may impact the benefit amount or eligibility period. Employers should report earnings accurately to ensure that former employees receive the appropriate level of benefits if needed.

3. Protections Against Wrongful Termination

Commission employees, like other workers, have legal protections against wrongful employee termination. Not only are commission employees protected against termination for wrong reasons, but it is also against the law to fire a commission employee before they receive their earned commissions.

What to Do if Your Commission Rights Are Violated

If you are a commission employee and you believe your rights have been violated, there are many legal steps you can take depending on the situation and circumstances of your case. 

Steps to Take When Facing Wages Disputes or Labor Violations

Below are some steps you can take if you are facing wage disputes or labor violations:  

  1. Review your contract: The first thing you should do if you encounter wage disputes or labor violations is review your employment contract and commission agreement. If the actions of your employer directly violates any policy outlined in your agreement, you can take legal action.

  2. Gather documentation: Although it is the responsibility of employers to document hours worked, it is generally a good idea for commissioned employees to also keep their documentation of hours worked and commissions earned. Having this documentation can help you build your case if there has been a violation of your rights.

  3. Reach out to HR or Legal Resources: Once you have reviewed your contract and gathered the necessary documentation, you can choose to reach out to the HR of your employer. Sometimes, speaking to HR when you have substantial evidence of labor violation can help you resolve the matter quickly without escalation. If speaking to HR does not resolve the problem, you can always contact local or state labor agencies for assistance.

How to File a Claim with the Department of Labor

If other methods fail, commission employees can file a formal claim with the U.S. Department of Labor. The DOL will investigate the case, and if it finds merit, it can pursue legal action against the employer. This process can help commission employees recover unpaid wages and commissions and hold employers accountable for labor law violations.

As you can see, commission employee labor laws can be complex but they ensure protection and fair treatment for workers while also providing employers protection from legal disputes as long as they comply with the regulations imposed on them. If you need further guidance on labor laws, consider reaching out to UpCounsel’s resources to contact an employment attorney.

FAQs

What is a commission employee? 

A commission employee earns income based on sales or performance rather than a set hourly wage or salary.

Do commission employees get overtime pay? 

Yes, if they are classified as non-exempt and work more than 40 hours per week.

Can a commission employee receive benefits? 

Yes, benefits eligibility depends on company policy and employee classification.

How are disputes over commissions resolved? 

Commission disputes may be resolved through employer discussions, state labor agencies, or formal claims with the Department of Labor.

What should I do if my employer refuses to pay earned commissions? 

Document earnings and contact labor agencies or the DOL if your employer fails to pay rightful commissions.