The regular rate and commissions. Part 2.

You know, I really have to start coming up with better titles for these posts. I’m getting boring beyond belief. Could be because I have spent the better part of a year talking about the FLSA and Regulations and every time I try to do something even a bit funny I get knocked down by someone in . . . . well, let’s not go there.

Last week we talked about the really simple and admittedly very rare situation where an employee gets paid on an hourly basis with weekly commissions. But what about the less simple and more common situation where a non-exempt employee gets paid commission once a month, or once a quarter? Then what?

 If the calculation and payment of the commission cannot be completed until sometime after the regular pay day for the workweek, the employer may disregard the commission in computing the regular hourly rate until the amount of commission can be ascertained. Until that is done he may pay compensation for overtime at a rate not less than one and one-half times the hourly rate paid the employee, exclusive of the commission. When the commission can be computed and paid, additional overtime compensation due by reason of the inclusion of the commission in the employee’s regular rate must also be paid. To compute this additional overtime compensation, it is necessary, as a general rule, that the commission be apportioned back over the workweeks of the period during which it was earned. The employee must then receive additional overtime compensation for each week during the period in which he worked in excess of the applicable maximum hours standard. The additional compensation for that workweek must be not less than one-half of the increase in the hourly rate of pay attributable to the commission for that week multiplied by the number of hours worked in excess of the applicable maximum hours standard in that workweek.

29 CFR § 778.119. So what you are doing here is getting the commission total on a, say, monthly or quarterly basis. Figure out how much of the commission was earned in each week of whatever period is covered, then you recalculate the regular rate for each week and pay the employee an additional amount equal to one-half of the increase in the regular rate for all of the overtime hours worked in that week. Not that bad, right? But you can only use this method when you can actually allocate the commission to a workweek in which it was earned.

So what do you do when you can’t apportion the commission to a specific workweek? Seems like in a lot of industries that would be the more common situation. Well, that is a really long Regulation and it even has examples, so we will do it next week.