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Q: Several employees in my company have approached me lately with questions about minimum wage and overtime. My entire sales force is paid on a commission-only basis, in part because I didn’t want to have to worry about things like overtime and minimum wage. Now they are telling me that, even if they don’t sell a single thing during the week, I have to pay them and even pay them overtime if it takes them more than 40 hours to sell nothing during that week. Is there any truth to this? Or are they just trying to squeeze more money out of me?

A: It’s a little of both.
Commission-only positions are ripe with wage and hour issues for employers. The first question I would ask you is whether these are inside salespeople or outside salespeople.
If an employee’s primary duty is making sales and that employee is customarily and regularly engaged away from your place of business, he or she is considered an outside salesperson. An outside salesperson is exempt from both overtime and minimum wage requirements. This is the only complete exemption for salespeople and is probably the exemption you are hoping for. Keep in mind, though, that, if the employee spends more than 30 percent of his or her time on work that is unrelated to sales, the exemption is destroyed and you may be required to pay both minimum wage and overtime.
If your employees are not outside salespeople, there are still several exemptions that may be applicable. For example, salespeople working in automobile dealerships are exempt from overtime, but motorcycle salespeople are not. The only real justification for the difference between the two is that the automobile industry probably had better lobbyists. Similarly, salespeople working for boat, aircraft or farm implement dealerships are also exempt from overtime. Remember – even though these employees are exempt from overtime, they must still be paid at least minimum wage for every hour worked.
A final potential exemption you might consider is the “retail sales” exemption. If a retail sales or service employee’s commissions are more than 50 percent of his or her total compensation and he or she earns at least 1.5 times minimum wage for all hours worked, then the employee is exempt from overtime requirements.
Here, because your employees are commission-only, they would satisfy the first part of the test – assuming you are in the retail sales or service business. Therefore, as long as they earned more than 1.5 times minimum wage they would be exempt. This, however, requires you to track their hours to ensure the minimum is being met.

Q: On the retail sales exemption, how, if they are already making 1.5 times minimum wage, is it an exemption from overtime? Or, more specifically, why do I care if they are already making overtime wages?
A: That is a very common question and the answer is a bit tricky. You care because, if your commission-only employee is not exempt from overtime, you must track hours and commission totals. For any week in which the employee worked more than 40 hours, you must calculate the regular rate of pay by adding all of his or her commissions for that pay period and dividing the amount by the total hours worked during the period. Then, once you have the regular rate of pay per hour, you must multiply that by 0.5 to come up with the additional overtime rate. That additional overtime rate must then be paid to the commission-only employee for each hour he or she worked over 40 in the week.
This is obviously a headache to track and calculate for each pay period. The problem becomes even worse if commissions do not vest or are not earned until sometime in the future – for example when the money actually comes in or when a guarantee period expires.
In these situations, you may be forced to calculate an employee’s regular rate of pay for a pay period from two months or more ago and then go back and give the employee additional overtime compensation for that pay period if they did not earn enough in commissions.

Mitch Baker is of counsel at the Portland office of Fisher & Phillips, one of the United States’ largest law firms that represent employers in labor and employment matters. Baker specializes in labor and employment law and employment discrimination. He can be reached at 503-242-4262 or [email protected]. Fisher & Phillips’ Web site is at www.laborlawyers.com.