If you’re thinking of taking a job in commission, there are laws and more that you should be aware of as well as many benefits.
If you’re on a commission-only pay structure for employees these are some of those benefits:
With 100% commission, workers have the power to outshine their salary-based counterparts and rake in the big bucks!
For those who prefer working with minimal supervision, commission-only roles offer the flexibility to work independently and customize your work hours based on your needs and preferences. The focus is on achieving results rather than the time spent in the office.
Unlock your motivation and watch your pay soar as you unleash your potential and achieve greatness. Your efforts will directly impact your earnings, fueling your drive to reach new heights and reap the rewards of your hard work.
Experience ultimate freedom with commission-only jobs. Embrace the flexibility of working from home or as a freelancer, allowing you to create your schedule and bid farewell to tiresome commutes and expenses associated with traditional office jobs.
All of this can be a sweet deal where you get paid for doing your duties. Some smart employers use commissions, especially in sales gigs, to motivate their workers. Why? Because when you’re in control of how much money you can make, you’re going to hustle.
Buyer Beware
However, commission-only pay is a big no-no as employers are legally obligated to provide their hardworking employees with a minimum wage that is set by state laws.
Navigating commission earnings can be quite the balancing act, as each employee dances to the beat of their financial drum.
Companies are required to consider each employee’s commission take-home and provide additional compensation if the earned commission falls below the hourly wage rate for the state.
Exemptions That Apply to Commission-Paid Employees
Several exemptions apply for commission-only employees under The Fair Labor Standards Act, including:
[1] Executive Exemption
The executive exemption is only applicable to individuals in a managerial role who earn a minimum salary of $685/week or $35,568/year. Executive employees are required to be paid on a salary basis and are therefore exempt.
[2] Administrative Exemption
The administrative exemption is similar to the executive exemption as it requires meeting the same monetary thresholds. However, in addition to the monetary requirement, certain other criteria must also be fulfilled.
The employee is responsible for various office-related duties, including accounting, tax-related work, advertising, marketing, quality control, budgeting, and more.
Additional responsibilities should involve utilizing discretion and making informed decisions regarding specific workplace issues.
[3] Professional Exemption
Not only does the professional exemption have a monetary threshold of $684 per week or $35,568 per year, but it also requires the employee to receive a salary rather than an hourly wage. On top of that, this special breed of employee must be a true “learned professional” or a wildly imaginative “creative professional.”
A true master of their craft is someone whose work demands a profound understanding of a specific domain. This domain could encompass the realms of law, medicine, engineering, accounting, teaching, science, architecture, and more. The mastery of this intricate knowledge is the product of countless hours of diligent study and intellectual exploration in the hallowed halls of academia. A learned professional encompasses a wide range of esteemed occupations, including doctors, lawyers, scientists, dentists, engineers, and those who hold similar positions of knowledge and expertise.
Creative professionals are artists, composers, actors, and dancers who rely on creativity, imagination, and originality.
[4] Computer Employees
To qualify for this exemption, a computer employee must meet the monetary threshold and work as a computer systems analyst, programmer, software engineer, or similar role. Primary duties should include:
The tasks involved in this role include designing, testing, documenting, and overseeing computer programs, prototypes, functional applications, and computer-generated software and hardware.
[5] Outside Sales Persons
To qualify for this type of exemption, you must meet the following requirements:
You must be engaged in daily work duties outside of the work office.
Your primary duty must be to make sales or create contracts for services for which clients pay compensation.
[6] Highly Compensated Employees
Individuals who meet the criteria of earning at least $107,432/year, working in office or non-manual positions, and fulfilling the necessary duties for executive, administrative, or professional exemptions will be eligible for the highly compensated employee exemption.
Here’s more about those working on commission-paid employees.
Overtime
If you work overtime, you must be paid 1.5 times your hourly rate and;
If you are exempt (as noted above in the various exemptions), then you are not required to be paid overtime.
Employers are required to compensate the difference between the hourly minimum wage rate and the amount received in tips for employees who earn tips. However, some employers choose to pay employees who earn tips the minimum hourly wage rate and allow them to receive tips, such as in restaurant establishments.
Retail or Service Qualifications
The Department of Labor determines the criteria for identifying businesses as retail or administrative establishments. A minimum of 75 percent of the business’s annual revenue must come from sales (and not re-sales).
Compliance
The FLSA Minimum Wage Poster provides information about the laws in this area. Employers are required to display the poster in a visible area for employees to view.
Commissioned Employees
Commissioned employees are subject to specific laws outlined in the FLSA. If the commission earned falls below the minimum wage rate for the state, the employer is required to provide additional income. In cases where employers hire commissioned employees, they typically offer a minimum wage rate in addition to the commissions earned by the employees. The same law applies to overtime pay for commissioned employees. The employer is not required to pay overtime to the employee unless they fall into one of the exemptions mentioned above, regardless of whether or not the employee earns a commission.
Commission-based pay is a form of workplace compensation that is determined by an employee’s sales productivity. It can be linked to either the total number of sales or the value of the items sold.
The calculation of commission pay is detailed in the commission agreement, and it is subject to regulation by state and federal laws. State and federal laws regulate commission-based pay.
Non-exempt employees are entitled to certain workplace protection such as:
Exempt employees are not subject to these legal requirements as dictated by state and federal employment laws.
According to the FLSA, employees are classified as non-exempt unless they meet specific criteria that make them exempt:
The white-collar exemption, which covers: executive employees, administrative employees, and professional employees;
Computer professionals, and
Outside sales employees.
Non-exempt Individuals Entitled to Get Minimum Wage
If you are not exempt from wage and hour laws, you are required to receive at least the federal minimum wage of $7.25 per hour. If your state has higher minimum wage laws, such as in California, you are entitled to receive that higher hourly rate.
If your commission pay is less than the minimum wage, you are entitled to receive at least the minimum wage.
If you are non-exempt, you are entitled to overtime pay.
If you are classified as non-exempt, you must receive overtime compensation for eligible hours. According to federal law, this entails receiving 1.5 times your regular rate of pay for any hours worked beyond 40.
This will lead to an increase in your base pay, but your commission amounts will remain the same.
According to federal law and regulations set by the U.S. Department of Labor, workers must earn a minimum of $684 per week in 2022 to qualify as exempt employees. Some states have higher minimums, such as California where employees must earn at least $64,480 in 2023 to be eligible for the white-collar exemption.
If you receive commission and are not covered by wage and hour laws in a category with a minimum salary, you must be paid at least the minimum salary.
However, not all exemption categories have a minimum salary.
FAQ
Can commissioned employees receive commission-only pay?
Yes, but only if you are classified as an exempt employee and meet the criteria for being exempt from minimum salary requirements. Typically, this classification applies to individuals who work as outside salespeople.
What kinds of commission-based pay are there?
If you receive a share of the sale that you made, it can be based on a commission basis, the number of sales you made, or the value of the sales that you made.
The details are outlined in the commission agreement, which is typically included as part of the employment contract. It includes:
The employee’s duties about selling the products or services,
Where the employee is expected to make those sales,
How commissions are calculated,
When commissions are earned,
Whether the commissions are paid at the point of sale or a later time, and
If, or how, commissions can be lost.
What happens to my commission payments if I am terminated?
When an employee is terminated or resigns from their job, they are entitled to receive all commissions that they have earned. The earned commissions must be paid in the upcoming pay period or on the employee’s designated payday, or they may also be included in their final paycheck. The commission agreement specifies when the commission becomes earned. The commission agreement might contain a forfeiture provision. Commission pay is only available to current employees, as stated by forfeiture provisions. If a forfeiture provision is included in your commission agreement and you are terminated, you will forfeit any pending commission payments.
If you believe that your former employer owes you sales commissions, it may be advisable to seek legal counsel from an employment attorney at a respected law firm. They can assist you in filing a wage claim and obtaining the unpaid commissions you are entitled to.
What are commission-only employees?
Commission-only employees are compensated based on the revenue they generate for the business. A commission refers to a payment made to an employee upon the completion of a service or task for the company. This is usually a mutually agreed percentage or fixed fee based on the revenue generated for the company.
When an individual is paid on a straight commission basis, their compensation is solely based on the commissions they earn and does not include a base salary or hourly wages. This type of compensation structure is commonly used in sales roles as a way to incentivize and reward increased productivity and sales performance, potentially resulting in higher earnings compared to a fixed salary, depending on an individual’s level of motivation and skill.
What are some factors to consider when deciding on a commission-only pay structure?
When deciding if you want to work on a commission-only structure, you might want to consider the following factors:
Degree of influence you have over customer buying decisions;
A mix of new business and account development;
Business sales cycle; and
Type of commission formula (i.e. whether the rate is a fixed percentage or fluctuates depending on performance or the sale amount).
Are commission-only employees non-employees?
Commission-only employees are classified as independent contractors and are responsible for their taxes using a 1099 tax form provided by the employer. They have the option to obtain their benefits, such as health, dental, or life insurance.
How is overtime calculated for commission-only employees?
According to regulations, employers are obligated to provide commission-only employees with overtime pay for hours worked beyond 40 hours per week, unless they meet specific exemption criteria. To calculate the overtime payment, multiply the regular rate by one and a half and compensate for each hour worked over 40 hours within a weekly timeframe.
What are the exemptions for overtime pay?
Per the Department of Labor, the following three conditions can qualify you for an exemption to the overtime requirements:
The employee works in a retail or service establishment.
The employee’s regular pay is 1.5 times the minimum wage for each hour worked in a weekly period when working overtime.
Over 50% of the employee’s regular earnings in a given period, which is typically less than one year, are derived from commissions.
Now that you have more insight about commission=only positions in the workforce you might consider hiring those who who be asserts to your business this way.
Hire the Best
If your recruitment efforts are not panning out, and/or you need further help with creating a healthy workplace environment, or have questions about commission-only, contact Search Masters for assistance. Our team of professionals can help you find the ideal personnel to empower your business.
Search Masters utilizes numerous online resources and tools to help you find the perfect people for your business.
Search Masters can assist you with creating job postings that could appeal to competent applicants and offer advice on assessing resumes and applications to find the ideal candidate for your business.
In addition, our assistance with interviewing skills, salary discussion tactics, and more is only a phone call away.