Title: Commissions based on work performed, not sales
As an employer, we pay our team members (who are property inspectors) a commission or “split” of the fee we charge for a service. The employees are not salespeople, but their annual wages are more than $65,000. in Keyes Motors, Inc. v. Division of Labor Standards Enforcement(1987) it says that commissions are for the sale of goods or services, but not the performance of making the goods or providing the service.
Our employees often work more than 8 hours per day and more than 40 hours per week. Are they exempt due to the amount of money they earn annually? Or are they entitled to over-time pay?
Hi Pheller,
Thank you for your question. Labor Code section 204.1 defines commissions as follows:
Commission wages are compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.
Labor Code section 2751 adopts the same definition, and specifically excludes: “Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract.” Likewise, the California Supreme Court has stated that to constitute “commissions,” the employees must be involved principally in selling a product or service. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 804.)
If your employees are not engaged in the sale of goods or services, and are merely performing services that your company has already sold to the customer, then they’re not making a “commission,” for legal purposes.
There are many exemptions in California, and I don’t know all the details of the work your employees perform, so I cannot tell you whether they are exempt or non-exempt. But it sounds like their job doesn’t really involve the selling of goods or services. If that is the case, then they would probably not qualify as exempt commissioned employees or exempt outside salespersons.
There might, however, be other exemption categories they fall into, particularly if they have a base salary that is double the minimum wage for full-time employment. We have explained California’s laws on exemptions in our article Exempt vs. Non-Exempt Employees: Guide to California Law.
I hope this information helps. Please remember that this information does not constitute legal advice and should not be relied on. Nor does it create an attorney-client relationship.
I wish you the best of luck in your situation!