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Attorney Answers: Are Commission Only Jobs Legal? I’m A Commissioned Employee. Am I Entitled To Overtime?

| Dec 27, 2013 | minimum wage violation, overtime time violation, Sales Commission Disputes |

Overtime Wage Lawyer Answers: Can I get time and a half for overtime work if I am paid only on commission? Am I entitled to minimum wage for hours worked on a commission only job?

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There are many jobs out there that do not pay a traditional wage- such as an hourly rate, or a salary. Instead, these jobs pay “commission only,” and the employee is paid a certain percentage of money coming into the employer for work performed by the employer. This pay arrangement is most common in high yield sales jobs, such as automobile sales and real estate. However, the employment law attorneys at the Spitz Law firm often encounter this kind of pay practice in other kinds of work as well, such tow truck drivers who earn a percent of every tow they perform, and other sales jobs where the potential commission one might earn is usually low due to the low price of the goods being sold.

As anyone in sales will tell you, there are swings in business. Sometimes sales periods are high, sometimes they are low. As a result, at times, a sales person may go several hours, or even days, without selling anything. And when that happens to someone who is paid commission only, that means working without pay. Is this legal? And what about overtime? If an employee who is paid commission only works more than 40 hours, are they entitled to time and a half? If so, how is that calculated?

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As usual in employment law, the answer to these questions is “it depends.”

Generally speaking, commission only pay practices are legal only if it results in the employee earning equal to, or more than, the minimum wage for all hours worked. Take the example of someone who sells cars for commission only. Say the salesperson sells one car a week, at 11 a.m. on Tuesday, earns $400.00 off the sale, and spends the rest of the week pursuing leads. Because the dealer is paid straight commission, they are not paid for the other 39 hours they worked. Is this legal? It is, because $400 divided by 40 hours equals $10.00 per hour. On the other hand, if the dealer sells three cars, and earns $50 for each sale, and sells no other cars, is that legal? No, because $150 divided by 40 hours equals $3.75 per hour, less than the minimum wage. If either salesperson has a bad week, and doesn’t sell any cars, the employer must pay them at least the minimum wage for the hours worked, even if they are considered “commission only.”

What about overtime? This depends as well. Generally speaking, employees must receive overtime pay for hours worked in excess of 40 hours in a workweek at a rate of at least one and one-half times their regular rate of pay. Their “regular rate of pay” includes commissions. But there are several exceptions that come into play. First is whether the employee is working in an “inside sales” position or an “outside sales” position. “Outside sales” are usually sales jobs that require the employee to perform his or her primary duties away from the employer’s place(s) of business, such as door-to-door sales people. People in these positions are usually not entitled to time and a half overtime pay.

“Inside sales” positions are far more common, and people in these positions are entitled to earn at least the minimum wage, plus overtime. However, there is a limited exception to the overtime requirement. Unlike jobs that pay on a per hour basis, most commission only jobs do not have to pay overtime if the employee’s regular rate of pay exceeds one and one-half times the applicable minimum wage for every hour worked in a workweek. In Ohio, the minimum wage is currently $7.85 an hour, so if a commission only employee earns at least $11.78 per hour when you divide their pay by all hours worked, they are not entitled to overtime for any hours over 40.

Finally, how do calculate overtime for a commission only employee? The math is actually fairly simple. Suppose the employee earns $1,000 in commissions for 50 hours of work in a single workweek:

  • Regular rate = $1,000/50 hours = $20/hour
  • Total compensation formula = earnings from commissions + (10 hours @ one-half the regular rate of pay)
  • Employees total pay = $1,000 + (10 hours x .5 x $20/hour) = $1,100

If you have been denied minimum wages or not paid time and a half for your overtime hours, or even think that you might need an employment lawyer, then call the right attorney to schedule a free and confidential consultation at (216) 291-4744. The Spitz Law Firm and its attorneys are experienced and dedicated to protecting employees’ wage rights under the Fair Labor Standards Act (FLSA) and Ohio wage law. The opportunity to meet directly with a wage and hour lawyer is just a phone call away. Your best choice is not to wait.

Disclaimer:

The materials available at the top of this overtime, wage and hour web page and at this employment law website are for informational purposes only and not for the purpose of providing legal advice. If you are still asking, “Am I entitled to overtime?”, “Does my job have to pay me for …”, “My paycheck is not right…” or “What do I do if…”, the your best option is to contact an Ohio overtime attorney to obtain advice with respect to FLSA questions or any particular employment law issue. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at the top of this page or through this site are the opinions of the individual lawyer and may not reflect the opinions of The Spitz Law Firm, Brian Spitz, or any individual attorney.