Are commissioned employees entitled to overtime?

The C&C Salon company recently agreed to pay $800,000 to a group of hairstylists in New York, New Jersey and Connecticut who claimed they had been denied overtime pay. The salon company had originally argued that the stylists were commissioned salespeople and therefore were not entitled to overtime, but a federal judge approved the settlement and said it was fair.

The case is not at all unusual – many businesses believe that commissioned salespeople are not entitled to overtime. And in fact, the rules can be a little hard to follow.

So, when exactly can a salesperson collect both a commission and overtime pay?

Under the federal Fair Labor Standards Act, employers have to pay overtime even to employees who are on commission, unless one of the following exceptions applies:

  • The employee qualifies as an executive, administrator or professional. In the case of a commissioned salesperson, this usually means that the employee must supervise at least two other employees, and must earn at least $455 per week (although this number is slated to increase dramatically fairly soon).
  • The employee’s main duty is selling goods or services and he or she spends the majority of the time on the road, away from the employer’s place of business. This exception would not cover the typical “inside” salesperson, who has an office at the company’s main location and is expected to meet with customers there.
  • The employee sells retail goods or services, the majority of his or her income comes from commissions, and the employee’s typical compensation is at least one-and-a-half times the applicable minimum wage for weeks in which overtime is worked.

As you can imagine, most hairstylists don’t supervise multiple employees and don’t spend most of their time on the road. So they have to be paid overtime, unless their compensation already exceeds one-and-a-half times the minimum wage.

Those are the federal rules. Many states have their own, even stricter rules, and an employer has to comply with both. If you have any questions, we’d be happy to advise you.