Labor laws for commission-only employees can be challenging to understand, let alone follow. These regulations affect industries where staff compensation is performance-based, like retail sales or real estate. For commission employees navigating their rights and employers ensuring compliance, understanding labor laws for commission-only employees is essential in 2026.
To ensure a positive and healthy work experience, employers and workers must work together to build a system that promotes fair treatment and state compliance. In this guide from Mosey, we’re answering the 16 most common questions about commission pay.
Key Takeaways
- Commission employees must still meet minimum wage requirements and may qualify for overtime pay
- The Department of Labor provides guidance on how commissions interact with minimum wage and overtime rules
- Employment lawyers can help navigate complex commission agreement terms and rights
- Understanding the regular rate is crucial for determining pay for overtime purposes
1. What Is a Commission-Only Employee?
Commission employees are workers who earn wages based exclusively on their performance. Their earnings are tied to sales and other measurable outputs rather than hours worked each day. Examples include travel agents, recruiters, and retail sales professionals working on straight commission.
The legal definition varies by jurisdiction. However, workers are usually considered commission employees when their pay depends on achieving specific goals or meeting certain quotas. This commission basis differs significantly from traditional hourly wages.
While there’s some overlap, commission employees and independent contractors aren’t the same. The important distinction lies in their employee classification. Commission employees are bound by company policies and protected by labor laws, while independent contractors typically enjoy greater autonomy.
2. Are Commission Employees Entitled to Minimum Wage Under Federal Law?
Under the Fair Labor Standards Act (FLSA), most workers are entitled to minimum wage. Some employees of retail or service establishments can be exempt from federal overtime requirements if they meet certain commission‑based criteria.
First, more than 50% of their total compensation during a representative period must come from commissions on goods or services. Second, their regular rate of pay for any week they work overtime must be more than one and a half times the applicable minimum wage.
In these industries, sales commissions are expected to meet—or exceed—the minimum hourly rate. Employees who qualify for this exemption are still covered by federal minimum wage rules but are not entitled to FLSA overtime pay for hours worked over 40 in a workweek.
Some states have very strict wage laws. California, for example, mandates that commission employees earn at least the applicable state or local minimum wage for all hours worked.
If sales commissions don’t meet minimum wage standards, many employers must make up the difference. Failure to do so could result in fines and legal penalties.
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3. What Are the Differences in Compensation for Salaried vs. Commission Workers?
Salaried workers receive fixed incomes regardless of performance, while commission pay workers rely on their ability to meet sales targets. Commission-only jobs often provide more flexibility, allowing workers to set their own schedules.
Salaried positions may come with stricter hours. However, salaried workers usually enjoy more comprehensive employee benefits and greater protections under labor laws—like guaranteed minimum wage.
4. How Are Commission Employees Classified for Tax Purposes?
Commission employees typically receive W-2 forms, as their compensation is subject to payroll taxes.
When tax season arrives, they’ll receive a W-2 form just like salaried workers. In some limited situations, commission employees may be able to claim deductions for unreimbursed work-related expenses, but this depends on their specific tax status and current federal and state tax rules. Attorneys and counsel can provide guidance on these deductions.
Employers must provide accurate tax documentation to maintain compliance. Processing can be delayed if a worker is misclassified or income information is incorrect.
5. What Are the Legal Limits on Working Hours for Commission Jobs?
The FLSA generally doesn’t limit the total hours employees can work in a workweek, including those paid on commission. However, state regulations may include specific restrictions. Several states require employers to allow breaks for meals and rest, even for commission pay workers.
Employers must comply with labor laws and Department of Labor guidelines in the states where they operate. They should monitor work schedules to stay on top of occupational safety regulations and prevent burnout.
6. Do Overtime Rules Apply to Commission Employees?
Commission-based workers are typically entitled to overtime pay unless classified as exempt. Non-exempt workers must be compensated at one and a half times their regular rate for the number of overtime hours worked beyond 40 in a workweek.
Employers must calculate pay for overtime purposes based on total earnings, including commissions. The regular rate calculation must include all commission pay when determining overtime compensation. States like New York and California have extensive overtime rules that often exceed federal requirements.
Employment lawyers emphasize that understanding overtime exemption rules is critical for both employers and commission employees.
7. Are There Worker Rights Against Unfair Deductions From Commission Pay?
Employers can’t deduct costs like merchandise returns, order cancellations, or operational expenses from sales commissions unless explicitly stated in a commission agreement. Issues arise when many employers deduct for unexpected costs like product defects or marketing fees.
Workers should review their commission agreement and commission structure closely before signing. Labor boards and arbitration processes are available for workers who dispute unfair deductions. Employment lawyers can assist clients in recovering unpaid commissions.
For employers, clear company policies and a proactive approach to regulations compliance are essential to avoid arbitration and legal issues.
8. How Do Termination Policies Affect Commission Agreements?
Sometimes, state regulations require a notice period for terminating commission employees. Employers must pay out earned sales commissions during termination, and workers are entitled to commission pay earned before termination if all contractual obligations were met.
Many employers can withhold unpaid commissions if the worker fails to meet outlined conditions. However, these terms must be clearly defined in the commission structure and employment contract. Former workers can file complaints with employment lawyers to recover owed amounts.
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9. Do Commission Employees Qualify for Employee Benefits?
Unfortunately, commission employees often aren’t entitled to traditional benefits like health insurance, 401k plans, sick leave, and PTO unless specifically outlined in their commission agreement or employment contract. Some states require employers to provide certain benefits, such as paid sick leave, to eligible workers regardless of pay structure.
Some companies offering full-time jobs include commission-only roles in their employee benefits packages as an added perk. If not, workers can negotiate employee benefits as part of their employment terms.
10. How Can Employers Ensure Compliance With Labor Laws?
Many employers should create clear, detailed company policies for commission jobs. These policies should address commission structure, the regular rate calculation, overtime requirements, pay deductions, and dispute resolution following Department of Labor guidelines.
Regular policy audits can identify potential compliance issues with regulations before they become disputes. Employers should stay current on changes to federal law and state labor laws. They should also educate managers about regulations affecting commissioned team members.
Employment lawyers and counsel can review policies to ensure they meet all legal requirements.
11. Can Commission Employees Represent One Company Exclusively?
Non-exclusive commission agreements allow workers to take multiple jobs simultaneously, while exclusive agreements restrict representation to a single employer. For an exclusivity clause to be legally binding, it must be explicitly stated in the employment contract or commission agreement.
Exclusivity agreements must be reasonable, as overly restrictive clauses can be challenged in court with help from employment lawyers. Employers and workers should discuss commission agreement terms openly and clarify potential conflicts in writing.
12. What Are the Legal Implications of Non-Compete Agreements?
Non-compete clauses can restrict commission employees from working for competing companies after leaving a role. These clauses typically expire after a set period.
Non-compete enforceability varies by state regulations. Many employers must draft agreements that protect business interests without unfairly limiting workers’ career rights. Employment lawyers can help clients understand these restrictions.
Instead of strict non-compete clauses, employers can consider non-solicitation or non-disclosure agreements to safeguard their companies. Lawyers recommend reviewing these terms before signing any employment contract.
13. How Are Expenses Handled for Commission Employees?
State and local labor laws may require employers to reimburse certain necessary business expenses, especially if the expense results from a required job function. In some limited situations workers may be able to deduct unreimbursed expenses on tax returns, but this is restricted under current federal tax rules and depends on their specific tax status.
Outlining clear policies in the commission agreement regarding which expenses workers can request reimbursement for helps prevent financial disputes.
14. What Is the Role of Training and Compensation for Commission Workers?
Workers must be compensated for all mandatory training, even on commission basis. Training isn’t voluntary if it prevents proper and safe job execution.
Many employers cover training costs, but some may request repayment if the worker leaves prematurely. Those terms must be documented in the commission agreement to be enforceable. Employment lawyers emphasize that compensation regulations apply during training.
Additionally, workers in commission roles often benefit from continuous training. Employers sometimes offer incentives for commission employees who complete relevant certifications, boosting worker productivity.
15. Are Commission Employee Rights Protected by Anti-Discrimination Laws?
Federal regulations like Title VII of the Civil Rights Act protect commission employees from workplace discrimination based on race, gender, religion, and other characteristics. Workers facing discrimination can file complaints with the Equal Employment Opportunity Commission (EEOC) or a state labor agency.
Every employer should enforce a zero-tolerance policy for discrimination and investigate claims. Employers must comply with anti-discrimination laws and provide equal opportunities for workers to succeed, regardless of background or classification. These rights protections are essential.
16. How Do Labor Laws Address Changes in Commission Pay Per Period?
In many states, employers are required to provide written notice when changing commission pay rates or commission structure under state wage notice laws. Unannounced changes may violate local labor laws or commission agreement contracts.
Workers have rights to challenge adjustments, especially if they reduce total compensation in a pay period. Detailed documentation and clear communication help resolve or prevent disputes. State regulations typically govern how and when many employers can modify commission pay policies.
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Labor laws can be complicated for commission employees, and remaining compliant with regulations requires careful consideration from employers and workers alike.
With Employee Handbooks by Mosey, you can build a multi-state handbook in minutes to distribute to all employees. Designed to support compliance across all 50 states, Employee Handbooks make it easier to monitor changes in labor laws and Department of Labor guidelines, automatically update your policies, and notify workers of relevant changes.
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Frequently Asked Questions About Commission Pay
Can an employee be 100% commission?
Yes, an employee can work on 100% straight commission, but they must still meet minimum wage standards per federal law. While commission employees can receive all compensation through sales commissions, many employers must ensure the regular rate meets minimum wage requirements. In retail or service establishment roles, workers may qualify for an overtime exemption if they meet specific criteria regarding their pay structure.
What does it mean when it says commission-only?
Commission-only means workers earn their entire compensation based on sales performance rather than hourly wages. In this commission structure, pay depends entirely on sales commissions generated through their work each pay period. This commission basis model is common in retail sales jobs, real estate, and other performance-driven industries.
Does FLSA apply to commission employees?
Yes, federal law under the FLSA applies to commission employees, but workers in certain jobs may qualify for an overtime exemption. The Department of Labor’s Wage and Hour Division provides guidelines through their fact sheet on when commission employees must receive overtime pay. Workers in a retail or service establishment can be exempt if more than half their total compensation comes from sales commissions and their regular rate exceeds 1.5 times minimum wage.
What are commission-only employees?
Commission-only employees are workers whose entire compensation comes from sales commissions rather than fixed hourly wages or salary outlined in their employment contract. These commission pay workers earn based on performance and sales results each pay period. The pay structure varies by industry and commission agreement but typically involves a percentage of each sale. Despite working on commission basis, these workers still have rights under labor laws including minimum wage standards.
What are the benefits for employers of a commission-only pay structure?
A commission pay structure offers many employers several advantages, including alignment of compensation with worker productivity and sales results. This commission basis model can reduce fixed labor costs while incentivizing high performance in retail sales and other jobs. However, employers must ensure their pay structure complies with Department of Labor regulations, including minimum wage standards and overtime rules. Working with employment lawyers helps many employers develop compliant commission agreements that protect both the company and workers’ rights.
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