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Commissions, overtime and the Fair Labor Standards Act

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in Compensation and Benefits,Human Resources

Q. We have a number of employees who are paid on a commission basis. Are they exempt from overtime under the federal Fair Labor Standards Act (FLSA)?

A. It depends. Generally, commissions are included in the total compensation paid to the employee for purposes of calculating the regular rate. In other words, just because an employee is paid on a commission basis doesn’t mean he or she is exempt from the overtime requirements of the FLSA.

However, Section 7(i) of the FLSA exempts from the act’s overtime requirements certain employees of retail or service establishments who are paid on a commission basis. For the Section 7(i) exemption to apply, three requirements must be met.

  1. The employee must be employed by a retail or service establishment.
  2. The employee’s regular rate of pay must be more than one-and-a-half times the applicable minimum wage.
  3. More than half of the employee’s compensation for a representative period (not less than one month) must represent commissions on goods or services.

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