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Commissioned Employees may be Entitled to Overtime Compensation

By: Santiago J. Padilla, Esq.

Many employers believe that employees paid on a "commission basis" are not entitled to overtime compensation. In fact, many companies in South Florida (including the Miami and Fort Lauderdale areas) pay their employees on a commission basis and contend that such workers need not be paid overtime compensation, regardless of whether they work over 40 hours per week, because they are paid on a "commission basis". However, this may be a violation of Federal law.

Specifically, under the Fair Labor Standards Act (the "FLSA"), which is the federal law that governs wages and hours, all non-exempt employees are required to be paid $7.25 for every hour that they work, and $10.88 for every hour that they work over 40 hours per week. Non-exempt employees in Florida are entitled to receive $8.10 per hour and $12.15 per hour for all hours over 40 worked per week. Most employees are non-exempt unless a specific exemption applies to them.

The only "commission exemption" is what is called the "retail or service establishment" exemption pursuant to which retail establishments may pay their employees on a "commission basis" provided certain conditions are met. Under Section 7(i) of the FLSA, a "retail or service establishment" is defined as an establishment in which 75% of its annual dollar volume of sales of goods or services (or both) is not for resale and is recognized as retail sales or services in the particular industry. In order to use the commission exemption, the retail establishment must meet the following three conditions:

  • the employee must be employed by a retail or service establishment, and
  • the employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
  • more than half the employee's total earnings in a representative period must consist of commissions.

The typical problems include the fact that most employers who pay on a "commission basis" do not maintain an accurate record of the hours worked by the employees. However, in order to take advantage of the Section 7(i) "retail exemption" as indicated above, the employer must maintain accurate records of hours worked each workday, hours worked during each workweek, and earnings and wages paid. Without maintaining this information, the employer cannot claim the exemption under the FLSA.

Therefore, if the employee that is paid on a "commission basis" works over 70 hours per week and the employer fails to maintain accurate records of the hours work and, as such, is unable to meet the test set forth above, then the employee may be entitled to overtime compensation for all hours worked over 40 during each workweek.

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If you have any questions regarding wages and hours or any other employment law matter, please contact Santiago J. Padilla at 1-800-483-7197.

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