I have had several people consult with me lately about whether they were paid overtime at the correct rate. Each one was paid on an hourly basis, but also earned a commission based on the sales made. The commission was paid on a monthly basis. So, they both asked me if they got paid properly. I have to say that this was pretty strange, two clients in the same week asking the same question, so I thought that I’d just put it out there….
First of all, I told them that they have to qualify for overtime in the first place. Not everyone who earns commissions is entitled to overtime. The law usually exempts people who get more than half of their pay from commissions from earning overtime, depending on what is being sold. The law also exempts people from getting paid overtime depending on if the sales are performed from inside a central location or at the customers’ home/business.
Assuming that they are entitled to get overtime, then the law requires that the commissions earned be considered when paying overtime wages. That law, the Fair Labor Standards Act (or “FLSA”), requires that “When the commission is paid on a weekly basis, it is added to the employee’s other earnings for that workweek . . . and the total is divided by the total number of hours worked in the workweek to obtain the employee’s regular hourly rate for the particular.” If the commission is paid monthly, then the FLSA directs that, “For a commission computation period of 1 month, multiply the commission payment by 12 and divide by 52 to get the amount of commission allocable to a single week.”
The whole idea is that your overtime rate should reflect the total “regular” rate of pay – not just the hourly rate of pay. The “regular rate of pay” includes the hourly pay and the commission paid earned in a week and then divided by the number of hours worked in that week. This calculation results in a new (higher) hourly rate than by just considering the hourly rate of pay. Just like how people rely on making more than just the hourly pay when working for commission, the overtime rate is based on the total weekly earnings and not just the hourly rate of pay.
The FLSA requires that employers pay their employees the correct amount of overtime wages, and also requires that employers pay the employees’ attorneys’ fees for not paying the correct amount of overtime.
Please feel free to contact Brian H. Pollock, Esq. at the FairLaw Firm for a free consultation about whether you think that you were paid the proper overtime or any other issues about your pay, or click here for a free case evaluation.