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Date Posted: 9/16/2014

Calculating Commissioned Pay

By Stefan Schumacher, editor of The Payroll Blog

Working on commission is an area where you can really sink or swim. Most salespeople thrive on the competition and the ability to earn as much as they possibly can based on how much they can sell. Others would rather avoid the pressure of not having a set salary they can count on. 

Of course, paying employees on a commission  basis is not quite that simple. Let’s break it down. 

Commission refers to the compensation earned by an employee for selling a company’s product or service. Commonly, a commission is a percentage of total sales or sales in excess of a certain amount. It may be the sole source of income to the employee or it may be paid in combination with a wage or salary. 

Under the Fair Labor Standards Act (FLSA), non-exempt employees who are paid on a commission-only basis must be paid at least the minimum wage and overtime pay for hours worked in excess of 40 hours in a workweek at a rate of at least one and one-half times their regular rate of pay. Check out the Department of Labor’s information on Commission.

The FLSA contains an exemption from the payment of both minimum wage and overtime pay to any employee employed as an Outside Sales Employee. An Outside Sales Employee is likely to be working under a commission only compensation structure. Check out the Department of Labor’s information on the Outside Sales Employee exemption.

The method for calculating commissioned pay is typically based on a commission agreement. Commission agreements with employees should be written in order to avoid confusion and misunderstandings that could result in wage claims or litigation. Some states require that commission agreements be in writing. 


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