Commission Pay and Overtime Rights

Are you an employee who is paid commissions only, or a combination of salary plus commissions? You might think you are not entitled to overtime pay. However, unless you are exempt from the overtime law (such as traveling salespersons who do not regularly report to an office, bona fide executives and professional, and others), you must receive a premium overtime wage for all hours you work over forty in a week.

The Massachusetts Overtime Law

The Massachusetts Overtime Law, M.G.L. c. 151, s. 1A, provides that employees must be paid one and one-half times their “regular rate” of pay for all hours worked in excess of forty in a workweek. An employee’s “regular rate” of pay includes all forms of compensation except for commissions, draw pay (recoverable or non-recoverable), bonuses, and “other incentive pay based on sales or production.” Once you have added together all the compensation an employee receives in a workweek (with those noted exceptions), you divide that total by the number of hours the employee worked to get the employee’s “regular rate.”

Commissions-Only Employees

What if you’re only paid commissions for your work? Because commissions are excluded from calculating the regular rate, as mentioned above, the regular rate is zero, right? The overtime regulations do not permit that result. Instead, the regulations prohibit the regular rate from falling below the minimum wage (currently $9.00 per hour). 454 CMR 27.03(1). So, the “regular rate” for a commissions-only employee is $9.00 per hour.
Then, we multiply that number by 1.5 and get an “overtime rate” of $13.50 per hour. In other words, for each hour a commissions-only employee works in excess of forty in a workweek, that employee must receive $13.50.

Employees Who Get Paid Salary Plus Commission

If an employee is paid both a salary and commissions, the calculation changes. While commissions are still excluded from the regular rate calculation, salary payments are included. So, the regular rate for an employee earning a salary would be his total weekly salary divided by the number of hours he worked. For example, if an employee earns a $50,000 salary per year ($961.54 weekly) and works 50 hours in a given week, his or her regular rate is $19.23 per hour. This employee’s overtime rate would be $28.85 ($19.23 x 1.5). This means that he must receive $28.85 for every hour worked in excess of forty in a workweek.

What if the commissions an employee earns exceed the amount of overtime wages owed?

Up until recently, this was an open question under state law. However, the Massachusetts Department of Labor Standards recently updated the overtime regulations to make clear that an employer cannot credit earned commissions toward meetings its overtime obligations. The new regulations provide:

Whether a nonexempt employee is paid on an hourly, piece work, salary, or any other basis, such payments shall not serve to compensate the employee for any portion of the overtime rate for hours worked over 40 in a work week …

Simply put, an employer cannot credit the commissions (or other forms of payment) an employee receives toward that employee’s earned overtime wages. Instead, the employer must separately pay that employee premium overtime wages for all hours worked in excess of forty in a workweek.

If you are an employee who earns commissions only (or salary and commissions), works over forty hours per week, and doesn’t receive premium overtime wages, call us at the number above or just email us at info@masswagelaw.com for a free consultation.