Are You Paying Your Commissioned Employees Correctly?
Are You Paying Your Commissioned Employees Correctly?
California’s wage and hour laws are complex. One particular area of complexity is properly compensating your commissioned employees. Paying employees based solely on commissions is still popular in commercial or retail sales positions. However, employers routinely make mistakes in tracking and paying their employees in this manner. Below are some common errors employers often make with their commissioned employees.
Do You Have A Written Commission Agreement?
Employers paying employees on a commission basis, in whole or in part, must provide their employees a written agreement explaining how their commissions will be computed and paid. Labor Code Section 2751(a). The employer must give the employee a copy of their commission plan and the employee must sign the agreement to acknowledge they received it. Labor Code Section 2751(b). Commission agreements can be complex and should be written in conformance with California law. If the agreement contradicts California law on its face, an employer is simply documenting its own violation. Therefore, it is helpful to have a legal professional prepare your commission agreements.
Are You Tracking Your Commissioned Employees’ Hours?
Many employers incorrectly assume that they do not need to track commission employees’ hours. This assumption is incorrect for a variety of reasons. First and foremost, unless an employee is exempt, they still must be paid minimum wage for all hours worked, including overtime. Cal. Code Regs., tit. 8, §§ 11040, subd. (7), 11070, sub. (7). An employee’s exemption status is determined each pay period. Thus, with commissioned employees that have fluctuating income, there could be pay periods when they do not meet the minimum earning threshold from their commission pay to meet the exemption. If an employee does not meet the minimum earning threshold via their commission payments, they must be paid at least the minimum wage for their time spent working for their employer during that pay period. If the employer is not tracking employee hours, the employer cannot properly calculate and pay minimum wage for all hours worked.
Further, commissioned employees are still entitled to overtime pay if their wages during a pay-period do not exceed 1 ½ times the minimum wage for all hours worked. Again, the only way to do this properly is to make sure the employee is tracking their hours worked.
Commissioned employees must also be separately compensated for non-sales related activities that do not allow them to earn commissions. Employers must pay employees at least the applicable minimum wage for all non-sales related activities, such as training, administrative tasks, travel and maintaining vehicles, and various pre-opening and post-closing assignments. Further, an employer is required to pay at least the applicable minimum wage for the mandatory rest breaks an employee is entitled to. An employer is not allowed to average an employee’s commission pay across all of the days’ work activities as this method fails to take into account the separate pay that must be paid for non-sales related activities. Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 110.
Are You Auditing Your Employees’ Time?
The requirements stated above clearly require employers to audit their commissioned employees’ time to ensure that minimum wage and overtime is not owed and to ensure employees are paid for non-sales related activity. An employer should be auditing each pay period to ensure compliance with California’s wage and hour laws. Employers should contact legal counsel with any questions regarding commission pay to ensure they are compensating their employees correctly.
Michael C. Rogers, Member
Michael C. Rogers represents employers in labor and employment matters including discrimination, wrongful termination, harassment and wage and hour violations. He also represents individuals and business entities in complex catastrophic personal injury matters, including product and premises liability.