Commission Employee Exemption from Overtime under the FLSA

Contact the experienced employment law attorneys at Maya Murphy, P.C. today at (203) 221-3100 or JMaya@Mayalaw.com.

The Fair Labor Standards Act (FLSA), is administered by the Wage and Hour Division of the Department of Labor.  The FLSA establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 130 million workers, both full‑time and part‑time, in the private and public sectors. (29 USC §201 et seq.; 29 CFR Parts 510 to 794).

The FLSA requires that most employees be paid at least the Federal minimum wage for all hours worked, and overtime pay at a rate of time and one-half the regular rate of pay after forty (40) hours in any particular workweek.  Along with these regulations, the FLSA provides many exemptions from the minimum wage and overtime rules, with one such exemption being for retail and service establishments under Section 7(i), who compensate employees through commission in whole or in part

If a retail or service employer elects to utilize Section 7(i) as an overtime exemption for their employees, three conditions must be met: (1) the employee must be employed by a retail or service establishment; (2) the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a particular workweek in which overtime hours are worked; and (3) more than half of the employee’s total earnings in a representative period must consist of commissions.  If all of these conditions are not met, the Section 7(i) exemption does not apply and the employee is due the overtime premium payment for all hours worked in excess of forty (40).  When calculating the total earnings of an employee in a representative period in element three (3) above, the representative period may be as short as one month, but must not be greater than one year.

If an employee’s compensation is paid entirely through commission, or draws and commissions, or if commissions are always greater than the employee’s salary or hourly amounts earned, the great than fifty (50%) percent condition must be met.  If the employee is not paid in this manner, the employer must separately total the employee’s commission and non-commission compensation paid during the elected representative period to determine if the total commissions paid exceeds the total of other compensation paid for the fifty (50%) percent requirement to be met.  To determine if the fifty (50%) percent requirement is met, the employer may divide the employee’s total earnings attributed to the pay period by the employee’s total hours worked during such period.  If the result is greater than time and one-half the minimum wage, the condition has been met.

If you are an employer and are seeking compliance with the FLSA, contact the experienced employment law attorneys today at 203-221-3100, or by email at JMaya@mayalaw.com. We have the experience and knowledge you need at this critical juncture. We serve clients in both New York and Connecticut including New Canaan, Bridgeport, White Plains, and Darien.

Source: dol.gov