What Are Commissions?

Wage & Hour Laws August 7th, 2019
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There are a variety of ways California employees can be paid for the work they perform. Many employees are paid an hourly wage or a fixed salary, but some are paid on a commission basis, which means their wages are for sales-related services and are calculated based on the amount or value of the goods or services sold. In California, commissions are considered wages, and an employer is legally obligated to pay employees the wages they have earned for work performed or goods or services sold.

While a commission agreement establishes the terms by which a commission is earned, California law determines when a commission must be paid. Under California law, if an employer fails to pay an employee the commission wages he or she has earned, the employee may have grounds to file a lawsuit against the employer. For more information about commissions in California or to speak to an experienced attorney about filing a lawsuit for unpaid wages, contact Davtyan Law Firm today.


What are Commissions?


Under California Labor Code sections 204.1 and 2751, commissions are wages paid to employees for services rendered in the sale of an employer’s property or services and proportionately based on the amount or value of such property or services. The key component of commission wages is that the employee’s wages must be directly correlated with either the amount of the goods or services sold or the value of the goods or services sold. There are many different ways in which commissions in California can be calculated. Some examples include:

  • Price percentage – A commission based on the percentage of the price the consumer pays for the products or services
  • Profit percentage – A commission based on profit, which serves as motivation for salespeople to sell a product or service at the highest possible price
  • Fixed-floor – A commission agreement that establishes a minimum payment the employee earns for each sale
  • Fixed amount per sale – A commission agreement that establishes a flat-rate payment based on the number of products sold
  • Mixed agreement – A commission agreement that uses varying percentages linked to total sales or the total number of sales


California Laws Regarding Commission Wages


The terms under which an employee earns commissions are established by a written agreement between the employee and employer, which is often part of a broader employment contract. According to California law, if an employee meets the terms of an established commission agreement, the employee has a right to receive the commission wage, and the employer is legally obligated to pay the wage the same way they would any other wages, typically by the next pay period.


California Overtime and Minimum Wage


With a few specific exceptions, California employees who work on a commission basis are generally entitled to be paid Minimum Wage in California for the hours they work. However, there are some exceptions to California’s commission-based wages law, with certain employees classified as “exempt,” even if they earn a commission.  California law exempts employees who fall under the “commissioned sales” exemption, which applies to employees who:

  • Earn at least one-and-a-half times the state minimum wage;
  • Earn more than half of their income in the form of commissions; and
  • Work in the mercantile industry (including retail), or in certain professional, mechanical, clerical, technical, or other similar occupations.

Outside salespersons are also excluded from laws on minimum wage and Overtime Pay in California. This exemption applies to employees who:

  • Spend more than half of their work time away from the employer’s place of business; and
  • Earn commissions from the sales of products, services, or use of facilities.


Our California Commissions Lawyers Can Help


All California employees have a right to be paid for their work and to be paid on time. However, California Wage & Hour Laws can be complex and there are certain exceptions to the law that can be confusing for individuals without experience navigating the intricacies of California employment law. If you work on a commission basis and your employer has failed to pay you the wages you are entitled to, do not hesitate to protect your legal rights. Contact our knowledgeable California employment law attorney at Davtyan Law Firm today to discuss the possibility of filing an unpaid wage claim against your employer for compensation.

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