Commissions

Under the Fair Labor Standards Act (FSLA), employees who are paid on an hourly basis must be paid at least the minimum hourly wage and overtime for work in excess of 40 hours, unless they are exempt. Certain employees are exempt from overtime pay rules if they earn a regular rate of pay that’s more than1½ times the applicable minimum wage for every hour worked in a workweek AND more than half of their total earnings in an average pay period consists of commissions on goods or services. The FLSA exempts certain securities industry brokers from overtime rules. Outside salespeople who work on commission are exempt from both minimum wage and overtime rules.

If you are a commission salesperson, the New York Labor Law says your employment agreement must be in writing and signed by both you and your employer. This law applies to independent contractors and employees. The employment agreement must include the following information:

• A description of how wages, salary, drawing accounts, commissions, and all other monies earned and payable will be calculated
• How often you will be paid
• The frequency of reconciliation (if the agreement provides for a revocable draw)
• Any details about the payment of wages, salary, drawing accounts, commissions, and all other monies earned and payable when the employment ends

Because New York law requires your commission employment agreement be in writing, specific information about how and when you are paid should be written in detail in the agreement. However, if your agreement is silent on any required issue, consider the following:

• In New York, a commission is considered earned when you have a person ready, willing, and able to enter into a contract upon the employer’s terms.
• Once you have earned a commission, it is considered your wages and is protected by wage laws. Your employer can only take out money from your wages if it is allowed or required by law (e.g., taxes, FICA, Medicare premiums, insurance, pension, union dues, and similar items).
• Once you have earned a commission, it is your right to receive it even if you and your employer have ended your employment relationship. Be sure to keep thorough records of commissions you have earned, especially if you will be leaving your job soon.
• In the absence of specific, written agreement stating otherwise, if you receive a draw against your commissions, you cannot be made to repay it if you have left your job and your earned commissions are less than the draw.

Legal Editor: Steven Mitchell Sack, January 2015 (updated February, 2016)