How do wage and hour rules apply to commissions?

Many employees in the San Diego area receive at least some of their income from commissions based on the products or services they sell.

A subset of these employees receive pay based almost exclusively on commissions.

Earned commissions are considered wages under California law. Likewise, commissioned employees are entitled to the same rights as any other employee, including with respect to the prompt and correct payment of earned wages and overtime.

California’s rules about commissions are complex

Still, just given the complexity of many commission arrangements, it may be difficult to understand how these rights apply under different circumstances.

As an overview, an employer is supposed to set out all commission arrangements in writing and must have the employee sign the agreement.

Each agreement may be tailored to an employer’s policies and circumstances, but, at a minimum, an agreement should set out how and when an employee actually earns a commission.

The agreement should also cover other important items, like dates on which the employer will settle up, draws on commission, and what happens if a customer later returns a product or cancels a service.

Commissioned employees are entitled to minimum wage and overtime pay

At a minimum, an employer must ensure that commissioned employees are receiving the legal minimum wage in California. The employer will have to account for an employee’s earnings and chip in additional money if the employee is not making enough commission to reach minimum wage.

Likewise, an employer must account for a commissioned employee’s time properly and pay any overtime the employer owes.

If an employee who works primarily or exclusively on commission feels that they have not been properly paid wages that they are owed, legal remedies may be available.