Commission-Based Employees and Overtime: What the FLSA Says

Millions of workers in the United States are paid partly or entirely through commissions. Sales reps, account executives, loan officers, insurance agents, home improvement representatives, and other commission-based employees often work well over 40 hours a week.

Being paid by commission does not automatically mean you are exempt from overtime. Under the Fair Labor Standards Act (FLSA), many commission workers are still entitled to overtime pay. The answer depends on the work you perform, how you are paid, and whether a specific exemption applies.

Do Commission-Based Employees Get Overtime?

Generally, non-exempt employees must receive overtime pay at one-and-a-half times their regular rate for hours worked over 40 in a workweek.

There is no blanket FLSA exemption for commission-based employees. A worker must meet the requirements of a specific exemption. Without an applicable exemption, overtime is generally required regardless of how the employee is paid.

FLSA Overtime Exemptions for Commission Workers

Employers commonly rely on several exemptions when classifying sales and commission-based employees. Each has its own requirements.

1. Outside Sales Exemption

Under 29 U.S.C. § 213(a)(1), the outside sales exemption applies to employees whose primary duty is making sales or obtaining orders or contracts and who are customarily and regularly working away from the employer’s place of business.

Location matters. A sales representative who works primarily from an office, call center, or home generally does not qualify for the outside sales exemption simply because customers are contacted by phone or online.

2. Section 7(i) Retail Commission Exemption

Section 7(i) can exempt certain commission-paid employees of retail or service establishments from overtime. Three requirements must be satisfied:

• The worker is employed by a retail or service establishment.
• The regular rate of pay averages more than one-and-a-half times the federal minimum wage.
• More than half of total compensation during a representative period comes from commissions.

Section 7(i) applies only to overtime. Minimum wage protections still apply. The definition of a retail or service establishment is also limited, which can leave many wholesale, industrial, manufacturing, and B2B sales workers outside the exemption.

3. Highly Compensated Employee Exemption

Certain highly compensated employees performing office or non-manual work may qualify for an exemption when they regularly perform at least one duty associated with an exempt executive, administrative, or professional position.

The compensation threshold and actual job duties both matter. A high income by itself does not settle the question.

When Commission Workers May Be Owed Overtime

Inside Sales Employees

Sales workers who spend their days making calls, sending emails, attending video meetings, or working from an office or home generally do not qualify for the outside sales exemption. Inside sales positions are common in technology, software, financial services, and call centers.

B2B Sales Representatives

Section 7(i) is limited to qualifying retail or service establishments. B2B representatives selling wholesale goods, manufacturing parts, or industrial supplies may not meet the exemption’s requirements.

Commission Workers With Slow Weeks

Section 7(i) requires the regular rate to remain above one-and-a-half times the federal minimum wage. A worker who puts in 50 or 60 hours during a slow sales period may fall below the required threshold.

Workers Receiving a Large Base Salary

Section 7(i) requires more than half of total compensation during the representative period to come from commissions. A substantial base salary or other non-commission compensation can affect whether the exemption applies.

Workers Classified as 1099 Contractors

A 1099 form does not determine whether someone is an employee. The Department of Labor and courts examine the actual working relationship, including the company’s control over schedules, sales methods, equipment, and other working conditions.

Common Myths About Commission Pay and Overtime

• “Commission-only means no overtime.” No. Commission pay does not create a blanket overtime exemption.
• “A draw against commission makes me exempt.” No. A draw is a compensation method, not an automatic exemption.
• “I signed away my overtime rights.” Employees generally cannot waive FLSA overtime protections by contract.
• “My employer does not track my hours.” Non-exempt employees are entitled to accurate time records. Personal records can help when employer records are incomplete.

How Is Overtime Calculated for Commission Employees?

Commission overtime can be more complicated than simply multiplying an hourly rate by 1.5. A typical calculation involves:

1. Total weekly earnings: Include qualifying base pay, commissions, and bonuses.
2. Regular rate: Divide those earnings by the total hours worked that week.
3. Overtime premium: Apply the additional half-time premium to hours over 40.

Commissions paid monthly or quarterly may need to be allocated back to the weeks in which they were earned when calculating overtime.

Commission-Based Jobs Where Overtime Disputes Are Common

• Software and technology: Account executives, sales development representatives, and other sales employees.
• Home services: Solar, roofing, HVAC, and remodeling sales representatives.
• Financial and insurance services: Loan officers, insurance agents, and brokers.
• B2B and wholesale distribution: Sales representatives serving businesses, factories, and construction companies.

What Can Commission Employees Recover?

A successful FLSA overtime claim may allow a worker to recover:

• Back pay: Unpaid overtime during the applicable limitations period.
• Liquidated damages: Often an amount equal to the unpaid wages.
• Attorney’s fees: The FLSA generally provides for reasonable attorney’s fees and court costs for a prevailing employee.

How Long Do You Have to Claim Unpaid Overtime?

Federal FLSA claims generally have a two-year limitations period, extended to three years for willful violations. Waiting can mean losing older weeks of unpaid wages.

Some states provide longer deadlines. New York, for example, allows six years for certain wage claims, while California provides longer periods for some wage violations. The applicable deadline depends on the claim and jurisdiction.

What Should Commission Workers Do?

1. Track your hours: Record start and stop times, calls, emails, travel, and other work performed outside scheduled hours.
2. Save compensation records: Keep pay stubs, commission statements, employment agreements, and compensation plans.
3. Review your classification: An employment lawyer can determine whether an overtime exemption actually applies.

Josephson Dunlap represents workers nationwide in wage-and-hour cases, including claims involving unpaid overtime and commission-based compensation. We offer confidential case evaluations at no cost.