“Commission-Only Pay” for Sales Employees in California

Commission-only pay refers to how some California sales employees are paid for work and/or services. In this arrangement, you earn a commission, or an amount of money, when you sell something. This amount is determined by either:

1. the quantity of items you sell, or
2. the value of the item sold.

As a general rule, California law requires that commissions be paid at least two times per month. Also, you are generally entitled to unpaid commissions upon the termination of employment.

The commission agreement is a document that sets forth the specific terms of a commission-only pay arrangement. Some of these terms may include:

• how your commission is calculated,
• when your employer must pay your commission by, and/or
• the time when your commission becomes earned.

Unless you are exempt, you still may be able to earn commissions and still get paid:

• • at minimum wage for the total number of hours worked,
  • overtime pay, and
  • for meal and rest breaks.

Our California labor and employment attorneys will highlight the following in this article:

• 1. Elements
• 2. Commission Agreement
• 3. Earned Sales Commission
• 4. Minimum Wage and Overtime Pay
• 5. Rest Breaks
• Additional Reading

1. Elements

Commission-only pay refers to how some California sales employees are paid for work and services.

A commission is simply an amount of money you earn when you sell something. Therefore, in a commission pay arrangement, your overall salary or compensation will depend on either:

1. the amount of goods sold, or
2. the value of an item sold.¹

The decision as to whether you get paid per the amount of an item sold or the value of the item is determined by you and your employer.

Example

Mark works for a Los Angeles used car dealership and his salary is determined by a commission only pay basis. Mark and the dealership agree that the dealership will pay Mark $150 for every car he sells. This amount represents the commission sales that Mark earns per vehicle. If he sells four vehicles in a day, he will earn a total amount of $600. Therefore, Mark’s overall minimum salary is determined by how many cars he sells in a given pay period.

Note that Mark and the dealership could have agreed that Mark would get paid, not per vehicle sold, but by the amount that the vehicle was sold for. In this arrangement, Mark would get paid a certain percentage of the sales price that he sold a car for. If this percentage was 10 percent, and he sold a car for $5,000, then the dealership would have to pay him $500 (which is 10 percent of $5,000).

“Sales Employee” Meaning

Note that you earn commission only if you are a “sales employee.” If you are not involved in selling items, you do not earn a commission.²

You “sell” something when you trade or exchange an item or service for:

• money, or
• something else that has value.³

2. Commission Agreement

The commission agreement is a document that sets forth the specific terms of a commission-only pay arrangement. The agreement is generally part of your employment contract.⁴

In the agreement, both your employer and you decide on the details concerning commissions and the conditions of employment. These details may include:

• how commissions are calculated,
• when commissions are earned,
• your primary duty in terms of selling,
• if a commission is paid upon the completion of a task, and/or
• if you are to conduct sales at your employer’s place of business, a certain service establishment, or some other location.

In a true commission-only pay arrangement, your compensation depends only on commission and not:

• an hourly pay or an hourly wage,
• an hourly rate applied across a total number of hours worked in a workweek,
• on a salary basis, or
• on a regular rate of pay.

3. Earned Sales Commission

California State law requires employers to pay you sales commissions when your commissions have been earned.⁵

A commission agreement typically sets forth the conditions and details on when your commission gets earned. An agreement, for example, may say that a commission is earned when:

• a customer signs a sales agreement to buy a good or service,
• a customer pays money for the good or service, or
• some other conditions.

Note, though, that once the conditions get met, the law says your employer has to pay you, just as it would have to with wages.⁶

4. Minimum Wage and Overtime Pay

If you are a non-exempt sales employee who gets paid on commission, you may also get paid minimum wage for the total number of hours you work.⁷ You can also likely get paid for overtime work if you work more than:

• eight hours in one day,
• 40 hours in a week, or
• six straight days in the same workweek.

An employer’s failure to provide you with minimum wage or overtime pay is a violation of the Fair Labor Standards Act (FLSA). However, California’s wage and hour laws do not apply if you are an exempt employee.

Outdoor and Inside Salespeople

An example of an exempt employee is an “outside salesperson.” You are an outside salesperson if:

• you regularly work more than half your working time away from your employer’s place of business, and
• you sell items or obtain orders for products or services.

If you are a commissioned inside salesperson, you are exempt as long as:

1. you earn more than 1.5 times the minimum wage, and
2. more than half of your compensation are commission earnings.

5. Rest Breaks

California employers usually must give you meal breaks and rest time unless you are considered exempt.

If you are a sales employee paid only on commission, your employer must also pay you for the time you spend on your rest breaks.⁸ This pay is separate and in addition to the payment of any commissions.⁹

Additional Reading

For more in-depth information, refer to these scholarly articles:

• Substantive Pay Equality: Tips, Commissions, and How to Remedy the Pay Disparities They Inflict – Yale Law & Policy Review.
• Retail Workers’ Job Experiences: An Analysis of Emotional Labor, Commission Pay, and Stress – Texas State University.
• The symbolic meaning of pay contingencies – Human Resource Management Review.
• Performance pay and worker cooperation: Evidence from an artefactual field experiment – Journal of Economic Behavior & Organization.
• Creating unfairness by mandating fair procedures: the hidden hazards of a pay-for-performance plan – Human Resource Management Review.

Legal References: