In the wake of a recent California Court of Appeals decision, the Vaquero case, employers who pay employees on a commission basis should assure that they comply with the following rules in order to avoid potential liability:

  • Compensate employees separately for time spent performing tasks not paid on commission –  If employees perform some work that is paid on a commission basis and other tasks that cannot generate commission income, employers must pay the employees separately for the time spent performing the latter work.  In order to comply with this obligation, of course, employers must require employees paid on a commission basis to track and record the time they devote to tasks that cannot generate commission income.
  • Compensate commissioned employees separately for time spent on rest breaks – The Vaquero decision clearly requires employers to pay employees paid on a commission basis at least the minimum wage for time spent on rest breaks.
  • Calculate overtime correctly for non-exempt employees who earn commissions – Non-exempt employees are generally entitled to overtime compensation if they work more than eight hours in a day or 40 hours in a week. The calculation of overtime can become complicated when a non-exempt employee’s compensation includes both hourly wages and incentive compensation such as commissions.  A through explanation of overtime compensation is beyond the scope of this Advisory, but a non-exempt employee’s regular rate of pay (the rate used to calculate overtime) is generally equivalent to his or her total non-discretionary compensation for the week (excluding the overtime premium) divided by the total number of hours worked.

Although commission arrangements are often perceived as being simple and straightforward, the rules can be more complex when applied in many real-life scenarios.  For a deeper dive into this topic, please check out our recent client alert.