COMMISSIONED WORKERS HAVE WAGE RIGHTS TOO!

July 15, 2015

Christopher Anderson

Many people erroneously believe that if a person chooses to work in a profession where they are paid either fully or in part on commission, then they automatically forego their rights to federally mandated protections like minimum wage and overtime pay. This is a fallacy that needs to be corrected! There are multiple overlapping and intersecting laws that affect salespeople, and it is important to untangle them in order to understand which ones do, and do not, affect any particular given employee.

Those working in “outside sales” positions, which are often commission-based jobs, are exempt from the Fair Labor Standards Act (FLSA) (if all of the criteria are met). That means true “outside salespeople” are not entitled to its overtime or minimum wage requirements. However, there is a very strict definition of what constitutes an outside sales professional, and most commissioned workers do not fall into this category.

The outside sales exemption only pertains to workers who primarily work away from the company’s place of business and whose main duties involve making sales or obtaining contracts/orders for the use of services or facilities.

To confuse things further, employees of “retail and service establishments” (which has a VERY specific definition – most businesses do not qualify) who are paid on a commission basis may be exempt from the FLSA if (and only if) three criteria are met:

• The employee is employed by a “retail or service establishment”
• 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 which overtime hours are worked
• More than half of the employee’s total earnings in a representative period consists of commissions.

Otherwise, commissioned employees generally qualify for the same wage and labor protections that are guaranteed to other non-exempt jobs. For example, if a commissioned salesperson fails to make enough sales in a single work week to make minimum wage for the hours he or she worked, and the employer does not pay the difference, then the employer may have violated the commissioned employee’s minimum wage rights. As with minimum wage, commissioned employees are also entitled to the federal standard “time-and-a-half” overtime pay if they work more than 40 hours in a standard work week.

Commissioned employees have other protections as well. In New York, commissioned employees are entitled to a written agreement when they start their job that dictates all the details of the commission agreement including how the commission will be calculated, the dates commissions will be paid, and any considerations regarding how the determination of wages impacts termination of employment.

In New York, some independent contractor salespeople have legal protections under the Labor Law, even though generally speaking independent contractors (if they are properly classified that way) are exempt from the normal wage and hour laws.

Furthermore, New York has also established through various court cases that unless there is an agreement specifically stating otherwise, if a commissioned employee receives advanced draws on expected future commission and then fails to achieve the expected commission, then the employee is not required to pay back the difference.

Finally, if a commissioned employee is terminated, they are still entitled to receive any commissions that they earned (in accordance with the employer’s pre-defined specifications on when a commission qualifies as “earned”) while they were still employed. Employers have the right to utilize commission-based wages to incentivize employees to work harder or make more sales, but it does not mean they get a free pass to take advantage of their rights. Commissioned employees are entitled to wage and labor protections. If you are a salesperson, the lawyers at AndersonDodson can help you determine which laws do and don’t apply to you, and where your rights may have been violated. If you have any questions about your rights as a commissioned employee, or you believe you have been the victim of unfair wage practices, give us a call for a free evaluation of your specific situation.