Overtime and commission based wages in California

Under California Labor Code section 510(a), all employees who work in excess of 40 hours in one workday or in excess of 8 hours per day must receive overtime pay. This provision, however, doesn’t apply to any employee “whose earnings exceed one and a half time of the minimum wage if more than half of that employee’s compensation represents commissions.” (California Code of Regulations, title 8, section 11040, subdivision 3(D)).

It is important to understand which compensation exactly is considered commissions for the purposes of the issue in question. A commission is a compensation paid for services rendered in the sale of property and services, and based proportionately upon the amount of the value of the services rendered. Under the Supreme Court definition, the compensation is commissions if (1) the employee receiving compensation is involved in selling a product or a service; (2) the amount of compensation in question is a percent of the price of the product or service.” (Ramirez v. Yosemite Water Co. (1999)).

Thus, if, for instance, the employer’s “bonus” or “incentive” pay does not depend on the volume of products/services sold by an employee, the overtime protections laws probably apply to that employee.

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