The opportunity for overtime in the workplace can be great motivator for employees to work extra hours. But for employee’s receiving commission pay, overtime compensation may not be correctly calculated. When employers miscalculate overtime pay for commission employees, workers miss out on considerable income.
The FSLA offers guidance
The Department of Labor (DOL) Fair Labor Standards Act (FSLA) offers guidance for calculating overtime for commissioned employees. According to the DOL, commissions are payments for hours worked, even if the commission is based on a percentage of total sales. Therefore, commission pay must be included in the regular pay rate when calculating overtime. The DOL elaborates a bit further stating the commission rate should be included whether the commission is the sole source of income or paid in addition to an hourly or salaried wage. Commissions are income, no matter the interval at which they are computed or paid.
When commission payments are paid on a workweek basis the commission pay needs to be added to the total earnings. That total is then divided by the total number of hours worked in the workweek to calculate the employee’s regular hourly rate. The overtime rate must equal 1.5 times the regular hourly rate.
A few exclusions apply
The FLSA outlines a few payments that are excluded from the regular rate. Common exclusions include sums paid as gifts, payments for vacation or sick time and retirement fund contributions.
There are a few classes of employees exempted from overtime pay, but employees in these classes must meet all the requirements in order to be exempt. Exemptions include employees in retail and service establishments whose commission incomemakes up more than half of the employee’s compensation. Employees who work in outside sales may also be overtime exempt.
Every employee, unless they fit within a very limited exception category, is eligible for overtime compensation. Employers are often guilty of excluding employees from overtime that are not exempt, shorting the employee significant earnings. Review your compensation for regular, commission and overtime pay to make sure your employer is correctly calculating your overtime pay rate.