The Subtle Nuances of the Commissioned Employee Overtime Exemption

Written by Galen Shimoda and Justin Rodriguez

On the surface, there does not seem to be many differences between the state and federal commissioned employee exemption. Both aim to exempt an employee from certain wage and hour laws, stating that overtime provisions do not apply to an employee whose earnings exceed one and one-half (1 1/2) times the minimum wage and more than half of the employee's compensation represents commissions. While there is an obvious difference between the state and federal minimum wage ($8.00 vs. $7.25, respectively at the time of this article), there are other subtle, hidden nuances that would otherwise go unnoticed unless one practiced wage an hour law on a regular basis. The importance of these differences is highlighted by the fact that an employer must comply with both state and federal wage and hour laws at the same time.

Initially, determining what occupations the state exemption applies to and what occupations the federal exemption applies to can be a daunting matter. For example, California wage and hour laws vary depending on occupation and industry. In total, there are sixteen (16) different sets of wage and hour laws (called "wage orders") that may apply depending on the particular type of employment in question. Yet, only two (2) of the sixteen (16) wage orders include a commissioned employee exemption. Federal law is also restrictive in its application, but in a different way. Under federal law, the commissioned employee exemption expressly applies only to those selling "goods" or "services." These terms are further defined in very particular ways, with federal regulations listing specific occupations as examples. The bottom line, even if an employee is properly exempt from overtime payment under state law, they may still be entitled to such compensation under federal law and vice versa.

Another major element of the commission employee exemption is what constitutes a "commission." This is an important definition because a "piece rate" compensation package (i.e. paid per job completed) and a commission compensation package (i.e. paid a percentage of a sale) can be very similar factually, but are very different legally. For example, a piece rate employee may be entitled to overtime compensation, but a properly exempted commissioned employee may not be. As a result, a true commission plan is typically related to the price of an item or service. While federal law has focused on the value of an item or service, the terms are functionally similar.

These are only two of the nuances that exist in a commissioned employee exemption case. Others may exist depending whether the commission plan includes a draw on commissions or a forfeiture of a draw for insufficient performance by an employee, whether the commissioned employee is the one rendering the service contracted for, and whether the compensation plan includes a fixed salary in addition to a commission.

The complexities of this exemption often mean that there is usually some basis to claim unpaid overtime for employees who have been paid commissions during their employment. If for no other reason, it is because the exemption is too complex for an employer to figure out how to comply with all of its requirements. If you believe you have any unpaid overtime claims, or other employment law claims, contact our office to have them evaluated.

 

The Shimoda Law Corp. legal articles should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of these articles are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.

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