UNPAID COMMISSIONS
Some California employees are paid by commission basis. Since commissions are wages, an employee is entitled to the prompt payment of all wages earned, including commissions. To qualify as a commission, the employee must be involved in selling a product or service and the commission earnings must be a percentage of the price of the service or product sold- not the making of a product or the rendering of a service.
Draw Against Commissions- Many commissioned employees are paid a draw against their commission. Draws against commissions are monies that are advanced to the employee by the employer. Draws against commissions are legal only if the draw is equal to at least the minimum wage due the employee for all hours worked in each pay period. Also, in order for the draw not to be considered wages, there must exist an express agreement regarding the draw against commission between the employer and the employee.
Overtime- Most employees who are paid a commission are entitled to overtime. Depending on how the employment relationship ends (quit or fired), the employee must be paid all of his earned commission wages that can be reasonably calculated at the time of termination.
Who doesn’t get Overtime- Employees who fall under IWC Orders 4 (Professional, Technical, Clerical, Mechanical and Similar Occupations) or Wage Order 7 (Mercantile) are not entitled to overtime if their earnings exceed1½ times the minimum wage and if more than half of that employee's compensation represents commissions.
How to calculate overtime- If you are paid a commission, either of the following methods may be used to determine the regular rate of pay for purposes of computing overtime:
- The commission rate is used as the regular rate and you are paid one and one-half this rate for production during the first four overtime hours in a workday, and double time for all hours worked beyond 12 in a workday; or
- Divide your total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours. For each overtime hour worked you are entitled to an additional one-half the regular rate for hours requiring time and one-half, and to the full rate for hours requiring double time.
Timing of Payment- Labor Code section 204 requires that commissioned employees be paid their commissions twice monthly. An employer may be subject to waiting time penalties if it does not pay its employee his or her earned commissions at the time of termination.
Payment of Commissions After Termination- Unless there is a valid contract, a commissioned employee is entitled to the commission if he or she is the procuring cause of the transaction.
DID YOU KNOW:
- If you are an Independent Contractor and are paid by commissions, you may be entitled to treble damages or three times your commissions.
- Deductions for overhead or costs cannot be deducted from commissions
For more information about Unpaid Commissions see Opinion Letters from the California Division of Labor Standards Enforcement:
If you were terminated or quit and believe you are owed unpaid commissions, please call our office at (310) 277-2323 or contact us online for a free consultation
Let us help you recover the wages and benefits you are owed.
