Commissions are a unique type of wages that are often the subject of employment disputes. Notably, litigation questions typically focus on whether the pay is considered commission, whether the arrangement satisfies the exemption Fair Labor Standards Act (FLSA) and whether the company is obligated to pay commissions upon conclusion of employment.
Schneider Wallace Cottrell Konecky LLP is a quarter-century-old litigation law firm that is grounded in the tradition of hard work and professionalism, while always looking toward the future of innovation and technology. Our lawyers help employees recover their rightful commissions, either through individual or class action litigation.
Payment of Earned Commissions
Commissions are wages. However, the time period in which commissions are earned may become a legal issue. Once a commission is earned, the company owes the employee those wages, even if the employee is terminated or quits. For example, the employee may be owed commissions on several open orders upon leaving the company. This might occur if the employment contract specifies that the company pays commissions upon receipt of payments for the goods or services from the client. The employer might, therefore, remain obligated to pay those commissions many weeks or months after the employee has already left.
When deciding whether the employee has earned the commission, our attorneys review the contract, the company-wide practices, the history of earnings and other evidence that demonstrates the manner in which commissions are earned and paid.
Commissioned Employee Exemption from Wage and Hour Laws
Often, salespersons are paid based upon the value of their sales, an arrangement intended to incentivize the employee to sell more for the company. Under a commission agreement, the employer may be exempt from certain of the FLSA mandates if it meets these criteria:
- The employer is a retail or service establishment in which 75% of its annual dollar volume of sales of goods and services are not attributable to resale and is recognized as retail sales or services in its industry.
- The worker who is exempt from is an employee of the retail or service establishment.
- The employee’s regular rate of pay exceeds one and one-half times the applicable minimum wage for overtime hours.
- More than half of the employee’s total earnings in a representative period consists of commissions.
Tips are not considered commissions for purposes of the commission-based FLSA exemption, but an employee may meet the tipped employee exemption instead.
Learn More About Commission-Based Earnings and Wages
Learn more about rights and obligations under commission-based earnings and wages. Consult with a Schneider Wallace employment lawyer at our California, Texas or Puerto Rico office. Our employment litigation lawyers regularly appear before state and federal administrative agencies and courts to litigate issues concerning the rights to wages.