Commission-based sales positions offer the potential for high earnings, but they also present unique challenges when it comes to complying with New York’s labor laws, particularly regarding overtime and minimum wage. Employers and salespersons alike must understand these regulations to avoid costly legal pitfalls.
The Minimum Wage Question:
Even if you're paid solely on commission, you're still entitled to at least the applicable New York State minimum wage for all hours worked. This means that if your commission earnings, when divided by the total hours worked in a pay period, fall below the minimum wage, your employer is legally obligated to make up the difference.
Tracking Hours: Accurate record-keeping is crucial. Both employers and employees should maintain detailed records of all hours worked.
"Draws" and Deductions: Be wary of “draw” systems or deductions that could bring your effective hourly rate below the minimum wage.
Overtime for Commission Salespersons:
The question of overtime for commission salespersons is more nuanced.
Exempt vs. Non-Exempt: The key determinant is whether the salesperson is classified as "exempt" or "non-exempt" under the Fair Labor Standards Act (FLSA) and New York Labor Law.
Exemption Requirements: To be exempt, a salesperson must generally meet specific criteria related to their job duties, salary level (if applicable), and decision-making authority. Simply being paid on commission does not automatically exempt a salesperson from overtime.
Non-Exempt Salespersons: If a commission salesperson is classified as non-exempt, they are entitled to overtime pay at 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. The "regular rate" calculation can be complex in commission-based scenarios.
Inside vs. Outside Sales: Outside salespersons may have different exemption rules than inside salespersons.
Common Pitfalls:
Misclassification: Misclassifying a non-exempt salesperson as exempt is a frequent and costly mistake.
Improper "Regular Rate" Calculation: Failing to include all forms of compensation when calculating the "regular rate" for overtime purposes.
Lack of Accurate Records: Inadequate timekeeping can lead to disputes and legal liabilities.
Deductions that lower effective wages: Some deductions can lower the effective hourly wage below the legal minimums.
What Employers Should Do:
Conduct Thorough Exempt/Non-Exempt Analysis: Carefully evaluate job duties and ensure proper classification.
Implement Accurate Timekeeping Systems: Maintain detailed records of all hours worked.
Calculate Overtime Correctly: Consult with legal counsel to ensure accurate "regular rate" calculation.
Review Commission Agreements: Ensure commission agreements comply with all applicable labor laws.
Stay Updated on Legal Changes: Employment laws are constantly evolving.
What Salespersons Should Do:
Track Your Hours: Keep detailed records of your work hours.
Review Your Commission Agreement: Understand the terms of your compensation.
Know Your Rights: Familiarize yourself with minimum wage and overtime laws.
Seek Legal Advice: If you believe your rights have been violated, consult with an employment law attorney.
Document Everything: Keep all paystubs and any documents related to your pay.
The Bottom Line:
Commission sales positions require careful attention to labor law compliance. Employers must ensure they are properly classifying employees, paying at least the minimum wage, and calculating overtime correctly. Salespersons should be proactive in understanding their rights and maintaining accurate records.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. It is essential to consult with a qualified attorney for advice tailored to your specific situation.