If you earn commission and work more than 40 hours, your overtime must be calculated on more than your base wage. This guide shows how commissions fit into the regular rate for hourly plus commission pay, commission-only pay and commissions paid monthly, plus when salespeople are exempt.
The rule: commissions are part of the regular rate
Overtime for a non-exempt employee is one and one-half times the regular rate for hours over 40 in a workweek, and the regular rate includes all remuneration for employment, with a few statutory exclusions. The Department of Labor's regulations at 29 CFR 778.117 through 778.122 apply that principle to commissions: payments based on a percentage of sales, sales above a quota or any other formula are payments for hours worked and must be included in the regular rate. A salesperson who earns $15.00 an hour plus a commission does not have a $15.00 regular rate in a week with commission; the regular rate is higher, and so is the overtime pay.
Case 1: hourly pay plus commission
When an employee is paid an hourly wage and earns commission in the same week, add the hourly earnings and the commission, and divide by total hours to find the regular rate. The employee has already been paid straight time for every hour, since the commission is treated as straight-time pay for all hours worked, so the employer owes only an additional half of the regular rate for each overtime hour.
- Straight-time earnings = hours worked × hourly rate, plus the commission for the week.
- Regular rate = straight-time earnings ÷ total hours.
- Overtime premium = 0.5 × regular rate × hours over 40.
- Total pay = straight-time earnings + overtime premium.
Take an employee who earns $15.00 an hour, works 44 hours and earns a $440 commission. Hourly earnings are 44 × $15 = $660, so straight-time earnings are $660 + $440 = $1,100. The regular rate is $1,100 ÷ 44 = $25.00. The overtime premium is 4 × 0.5 × $25.00 = $50.00, and total pay is $1,150.00. If the employer ignored the commission and paid the premium on $15.00, it would owe 4 × 0.5 × $15 = $30.00, which is $20.00 too little for the week.
Case 2: commission-only pay
A commission-only employee who is not exempt is also owed overtime. The regular rate is the commission earned in the week divided by the hours worked in the week, and the employer owes an additional half of that rate for each overtime hour. Suppose an employee earns $900 in commissions in a week and works 45 hours. The regular rate is $900 ÷ 45 = $20.00. The overtime premium is 5 × 0.5 × $20.00 = $50.00, so total pay is $950.00. Wage laws also require the employee to receive at least the minimum wage for each hour worked in the workweek; if the week's commissions are low, the employer must make up the difference, because commissions cannot be averaged over weeks to meet the minimum wage.
A draw against commission is an advance on future commissions. It does not change these rules: for each workweek, the employee must be paid at least the minimum wage for all hours, and overtime must be paid when hours exceed 40. How a draw can be recovered from later commissions is also limited by wage law and by state rules, so check the written agreement and your state's requirements.
Commissions paid monthly or quarterly
Many commission plans pay once a month or once a quarter. The overtime rules still work week by week. The commission has to be attributed to the workweeks in which it was earned, and overtime is recalculated for each week in which the employee worked more than 40 hours. If the commission cannot be tied to specific weeks, the Department of Labor's guidance permits a reasonable allocation, such as equal amounts per week. The extra overtime owed on the commission in each week equals the allocated commission divided by that week's total hours, times 0.5, times that week's overtime hours.
Example: a $2,400 monthly commission allocated equally ($600 per week) over four weeks
| Week | Total hours | Overtime hours | Calculation | Additional pay due |
|---|---|---|---|---|
| 1 | 40 | 0 | No overtime | $0.00 |
| 2 | 45 | 5 | $600 ÷ 45 × 0.5 × 5 | $33.33 |
| 3 | 50 | 10 | $600 ÷ 50 × 0.5 × 10 | $60.00 |
| 4 | 40 | 0 | No overtime | $0.00 |
| Total | 15 | $93.33 |
The same method works for bonuses; see how bonuses affect overtime pay for the discretionary versus nondiscretionary test. If you are paid a salary plus commissions, compare with fluctuating workweek overtime to see how a salary that covers all hours changes the calculation.
When commissioned salespeople are exempt
Not every salesperson gets overtime. Two exemptions come up often.
- Outside sales. An employee whose primary duty is making sales away from the employer's place of business, and who is customarily and regularly engaged in that work, can be exempt under the outside sales exemption, regardless of salary (29 CFR 541.500). Inside sales staff who work at a desk or in a store generally do not qualify.
- Retail and service establishments. Section 7(i) of the FLSA allows an exemption from overtime for employees of a retail or service establishment if their regular rate is more than one and one-half times the applicable minimum wage and more than half of their earnings in a representative period come from commissions. The employer must meet all of the conditions, so the label alone is not enough.
Job duties, not the title "sales representative," decide whether an exemption applies; see exempt vs. non-exempt employees. If you are an inside salesperson who regularly works more than 40 hours and receives no overtime, the exemption may not apply to you.
State rules on commission pay
Many states require written commission agreements, set deadlines for paying commissions earned, or restrict deductions and chargebacks. They can also require overtime in situations where the FLSA does not. The stricter standard applies. Look at your state labor department's page on commission pay, and keep a copy of your commission plan.
How to check your commission overtime
- Record your daily hours and total them for each workweek with the Weekly Time Card Calculator.
- Find the commission credited to each week on your pay stub or commission statement; see how to read a pay stub if the lines are unclear.
- Compute the regular rate and the overtime premium with the formula above, or use the Overtime Pay Calculator for the hourly part.
- Compare your result with the overtime line on your paycheck. If it is lower, send payroll a specific, written request that lists the weeks, hours and commission amounts.
- If you work for two employers or two rates, read overtime with two jobs.
Frequently Asked Questions
Is commission included in overtime pay?
Yes. Commissions are part of the regular rate, so overtime for a non-exempt employee is calculated on hourly earnings plus commissions for the workweek.
How do I calculate overtime for commission-only pay?
Divide the week's commissions by total hours worked to get the regular rate, then pay an additional half of that rate for each hour over 40.
How is overtime calculated if commissions are paid monthly?
The commission is attributed to the weeks it was earned, and overtime is recalculated for each week with more than 40 hours.
Are commissioned salespeople exempt from overtime?
Some are. Outside salespeople may be exempt, and certain retail or service employees can be exempt under section 7(i) if all conditions are met. Many inside salespeople are not exempt.
Does a draw against commission change overtime rules?
No. Minimum wage and overtime must still be satisfied each workweek, and state law limits how draws can be recovered.
Can my commission be averaged to meet minimum wage?
No. Minimum wage compliance is determined workweek by workweek, so commissions earned in other weeks cannot be averaged in.
Related tools & guides
This guide is for general informational purposes only and is not legal, tax, or financial advice. Labor laws vary by state and change over time. Confirm your specific situation with your employer, HR department, or the U.S. Department of Labor.