If you’re a commission-based employee—or an employer with commissioned staff—understanding the rules around overtime pay is essential. While the Fair Labor Standards Act (FLSA) offers an exemption for commissioned employees working in retail or service establishments, the law is more nuanced than it may initially seem.
To qualify for the overtime exemption, three key criteria must be met:
1. The Business Must Be a Retail or Service Establishment
This has a specific legal definition under the FLSA. Not every business that sells goods or services qualifies. If you’re unsure whether your business fits this classification, we can help clarify.
2. The Employee’s Regular Rate Must Exceed 1.5 Times the Minimum Wage
For any week in which the employee works overtime, their regular rate of pay must be more than one and a half times the applicable minimum wage for each hour worked. It’s a complex calculation—and if that sentence made your head spin, you’re not alone. Reach out for guidance on how to accurately determine this rate.
3. Commissions Must Make Up More Than Half of the Employee’s Earnings
This requirement applies to a “representative period,” which is a defined span of time used to evaluate earnings. Understanding how to establish this period—and ensuring that commissions meet the required threshold—is crucial for compliance.
Need Help Navigating These Requirements?
Whether you’re an employer trying to stay compliant or an employee curious about your rights, we’re here to help. Contact us to ensure you’re meeting all legal obligations under the FLSA.