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COMMISSIONS
 
 
A commission is a sum paid to an employee for transacting business or performing a 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 other types of remuneration. Commission agreements with employees should be written in order to avoid confusion and misunderstandings that could result in unnecessary wage claims or litigation.
 
Q. When I place an employee on a commission, does that mean I don´t have to pay minimum wage or overtime?
A. No. A commission, like a wage or salary, is just a method of providing remuneration or pay for an employee’s services. Non-exempt employees
(those employees entitled to minimum wage and/or overtime) must still receive no less than the applicable minimum wage based on the number of hours worked in the pay period and overtime at 1.5 times their average hourly rate for work over 40 hours in a seven-day week. Federal law (the Fair Labor Standards Act or FLSA) requires that employers include commissions when they calculate the employee´s average hourly rate or “regular rate” for purposes of determining the rate of pay for overtime. The FLSA applies if the activity of the enterprise is a public agency, a hospital, a residential institution for the mentally or physically ill or a school. The FLSA also applies if the enterprise grosses at least $500,000 annually or if the individual employees of the enterprise are engaged in interstate commerce. Oregon law does not require commissions to be included. However, most Oregon employers are covered by federal law and must include commissions in the regular rate. Including commissions increases the regular rate of pay and is more beneficial to the employee in terms of the amount of overtime pay owed. If an employee is paid 100% commissions, the employer must ensure that the payment of commissions is enough to at least equal minimum wage based on the number of hours worked in the pay period. When considering overtime obligations for commissioned employees, if the average hourly rate of pay is less than the minimum wage, the employer must boost the hourly rate up to the minimum wage and pay overtime at 1.5 times that rate.
 
Q. Are there any commissioned employees that are exempt from the minimum wage and/or overtime rules?
A. Yes. Both federal and state laws provide several specific exemptions.
 
Commissioned employees exempt from BOTH the minimum wage and overtime rules include:
 
Outside Salespeople
Employees who regularly sell or obtain orders or contracts for goods, services, or facilities away from the employer´s business locations are exempt from minimum wage and overtime, provided that the hours worked in "other than outside sales" in each workweek do not exceed 30 percent of the hours worked by other nonexempt employees.  
 
Commissioned employees exempt from overtime rules but NOT exempt from the minimum wage rules include:
 
Sales, Partspeople and Mechanics
The overtime rule does not apply to employees who are primarily engaged in selling or servicing autos, trailers, trucks, or farm implements, if they are employed by a nonmanufacturing establishment engaged in the business of selling those items to ultimate purchasers. For example, these types of employees who are employed by d
ealershipsqualify for this qualify for this exemption .
 
Other Specific Sales Positions
The overtime rule does not apply to employees who are primarily engaged in selling trailers, boats, or aircraft, if they are employed by a nonmanufacturing establishment engaged in the business of selling those items. Again, these types of employees who are employed by a dealership would qualify for this exemption.
 
Commissioned Employees in Retail or Service Establishments
Overtime rules do not apply to an employee paid on a commission basis, provided that the regular rate of pay is in excess of one and one-half times the current Oregon minimum wage, and if more than half of the employee´s compensation for a representative period of time (not less than one month) represents commissions earned on goods or services sold. Employers may pay a guarantee or allow draws against anticipated commissions and still qualify for this exemption as long as both criteria are met.
 
Q. How do I compute the regular hourly rate of pay if my commissioned employees do not qualify for one of the above exemptions?
A. Most employers are subject to federal law that requires them to include commissions in the regular rate. To compute the regular rate, add the commission earnings to any other earnings for the week and divide by the number of hours worked in that workweek.  

For example, if an employee is paid $300 as a flat rate and is also paid $300 in commissions for 38 hours of work, then:
 
$300 plus $300 = $600
$600 divided by 38 = $15.78 per hour, which will be considered the regular rate for purposes of calculating overtime.
 
Since the employee did not work over 40 hours, no overtime is due for this week. If the employee had worked 43 hours, the regular rate would be $600 divided by 43, which equals $13.95 for the regular rate, and additional half-time pay at $6.97 would be due for the three overtime hours worked: $6.97 times 3 = $41.85. In this scenario, the commissioned employee would be due a total of $641.85 in income for the week in which 43 hours were worked. 
  
Note: Since the employee had already received straight time earnings for all hours worked, only additional half-time pay is due for the overtime.
 
Q. What if the employee receives deferred commissions? When do I pay overtime?
A. If the commission cannot be calculated until after the regular payday, the employer may disregard it until the amount can be determined. Once the commission is determined, the overtime must be computed and paid. This applies only to federally-regulated employers because state law does not require the inclusion of commissions for computing overtime.  
 
For federally-regulated employers, in order to compute the overtime on deferred commissions, the commission must be apportioned back over the time period in which it was earned. Then an additional half-time will be due for any overtime hours
 
Example: An employee worked 188 hours during the month of June which included 20 hours of overtime. Commissions amounting to $2400 were paid for that time period:
 
$2400 divided by 188 = $12.76
$12.76 divided by 2 = $6.38
$6.38 x 20 = $127.60 additional overtime due
 
Note: Only additional half-time pay is due because the employee already received the straight-time pay.
 
Q. If I pay on a deferred commission basis, must I pay minimum wage in the interim until the commission amount is figured?
A. Yes. The applicable minimum wage must be paid in the interim. If there is a written offset agreement, these amounts may be deducted from the deferred commission once it is actually received. 
 
Q. What if I pay my employee a draw or advance on commission sales and the sale is canceled?
A. An employer is not required to pay draws or advances, but if the employer chooses to do so, there should be a written commission agreement in place. If you want to add a provision that specifies commissions are not earned until the sale is final, you could do so. If you intend to recoup commissions paid but not technically earned, the agreement should further provide that these advances or draws may be deducted from future commissions.
 
Q. When a commission paid employee is discharged with sales income yet to be received by our company, when is the final paycheck due?
A. The check is due by the end of the next business day. However, if the commission agreement expressly provides that commissions on sales are not "earned" by the employee until payment is received by the company, the company may pay all other earnings to the terminated employee, but exclude commissions on sales not yet earned. These may be paid at a later date when all conditions are met as specific in the agreement. For example, the commission may be paid when the customer pays or when the customer’s right of return has passed.
 
Q. Are commissions collectible under Oregon´s Wage Collection Law?
A. Yes. It is important to place the agreement in writing with the aforementioned issues fully addressed to avoid confusion and litigation.
 
July 2017
 
 
DISCLAIMER 
Nothing on this website is intended as legal advice.  Any responses to specific questions are based on the facts as we understand them, and not intended to apply to any other situations.  This communication is not an agency order.  If you need legal advice, please consult an attorney.  We attempt to update the information on this website as soon as practicable following changes or developments in the laws and rules affecting Oregon employers, but we make no warranties or representations, express or implied, about whether the information provided is current.  We urge you to check the applicable statutes and administrative rules yourself and to consult with legal counsel prior to taking action that may invoke employee rights or employer responsibilities or omitting to act when required by law to act.
 
TECHNICAL ASSISTANCE FOR EMPLOYERS
800 NE OREGON STREET, STE 1045
PORTLAND, OR  97232
971-673-0824
 
 
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