Commission Sales Workers Entitled to Overtime
Many employers pay salespeople in whole or part by commission. For example, salespeople selling timeshares, cruises, travel packages, subscriptions and similar things are usually paid over 50% of their income in commission. Commissioned workers have good months with lots of sales and bad months with few or no sales. Federal law requires that in those bad months, the employer must keep track of the salespeople’s actual work hours and pay them an amount at least equivalent to one and one-half times the minimum wage every month. And, in a recent Court of Appeals court decision, the Court made clear that an employer cannot average commission payments in different months to determine if an employee has paid enough money.
For example, assume that a salesperson, Jill, receives a 5% commission on sales of timeshares. She usually works 55 hours a week and her pay is 100% commission. Under the Court’s recent decision, federal law would require that Jill be paid, at a minimum, $1815 for the month. This is true even in months in which Jill makes no sales and even if in preceding or later months Jill makes lots of sales. For example, assume our hypothetical salesperson Jill works 55 hours a week or 220 hours a month, and in September she earns $7,000 in commissions. In October, she works 220 hours, but she has a tough month and earns only $1,000 in commissions. In November, she has another good month and earns $8,000 in commissions. In October, Jill would be owed an additional $815 ($1,815 - $1,000 already paid) by her employer. Moreover, if the Company failed to pay Jill the $800 she would be entitled to an additional $800 just for that month as liquidated damages.
The Court of Appeals ruling is that an employer cannot average commissions beyond the period for which they are paid and it cannot do so beyond a month as a period of time. Federal law requires that an employee be paid at least the minimum wage for the first 40 hours worked each month and 1.5 (time and one-half) times the minimum wage for each hour worked in excess of 40 hours a week. It is no defense to this requirement that an employer paid the employee more than the minimum wage in other weeks because the law does not permit averaging of wages across different weeks or, in the case of commissioned workers, across different months. See Freixa v. Prestige Cruise Services, LLC, Case No. 1:15-cv-227324 (11th Cir. April 13, 2017).
Although the legal basis for the Court’s ruling in this case is plain on the face of the law, the rationale for this is plain too. Employees are entitled to a subsistence wage and to overtime in months for which they work for an employer. Subsistence lifestyles cannot be “averaged.” The minimum wage is exactly what it is called, a minimum, and employers’ pay plans must meet this at a minimum.