G. Regular Rate for Employees Paid a Commission

Employees paid on a commission basis, or who are paid a commission in addition to an hourly rate or salary, are covered by the minimum wage and overtime rules just as any other non-exempt employee. As with other methods for determining the regular rate of pay for overtime purposes, the commission payments must be included with other forms of pay for hours worked in order to calculate the total straight time pay, which is then divided by the hours worked during a workweek in order to arrive at the regular rate of pay for that particular workweek. This basic method applies whether the commissions are paid on a weekly basis or on some other, less frequent basis. Since commission payments often vary from week to week, it is very common for employees paid on a commission basis to have a regular rate that likewise varies from week to week. 29 C.F.R. 778.117 explains the general issues in computing the regular rate for commission-pay employees.

If commissions are paid weekly, add the commission payment to the other forms of pay for that week and divide that total by the number of hours worked that week. Since the commission payment and other forms of pay represent the straight-time earnings for that week, any overtime would be compensated by paying half of the regular rate times the number of overtime hours on top of the straight-time earnings, thus bringing the employee up to time and a half; see 29 C.F.R. 778.118.

If commissions are paid on a delayed basis, extra overtime pay based upon commissions earned for a particular workweek does not have to be paid until the commission amount is determined. 29 C.F.R. 778.119 provides that in case the commission payments can be specifically tied to particular workweeks, the amounts so allocated are added to the other earnings for those workweeks, and the regular rate calculations are carried out as discussed above. If the commissions cannot be allocated to specific workweeks of activity, then the calculation is carried out basically the same as for bonuses that are paid for a quarter, half-year, or year: the commission must be allocated pro-rata to each workweek in the period covered by the commission payment, and in any workweeks in which the employee worked overtime, the regular rate would be recalculated as discussed above; see 29 C.F.R. 778.120. As is the case with commissions paid weekly, for a workweek with overtime hours, overtime pay equals half of the recomputed regular rate times the number of overtime hours. Put another way, the extra overtime pay would be equal to one-half of the increase in the regular rate due to the commission, multiplied by the number of overtime hours that week. (The regular rate increase only needs to be multiplied by one-half because the commission allocation itself represents the straight-time payment - adding the two together results in the payment of time and a half.) If the hours worked vary significantly from week to week, thus making it unrealistic to allocate equal portions of the commission to each workweek, an alternative method is allowed under 29 C.F.R. 778.120(b) that involves allocating an equal amount of the commission to each hour worked during the computation period (i.e., commission amount divided by total hours in the computation period); the overtime is then calculated by multiplying one-half of that figure (representing the increase in the regular rate attributable to the commission) by the number of overtime hours worked in each workweek during that period. See 29 C.F.R. 778.119 and 778.120 for examples of the above calculations.

As with any other pay method, the commission pay method may in no case result in less than minimum wage for all hours actually worked, plus time and a half for hours worked in excess of 40 in a workweek.

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