Paid on Commission? How Overtime Works and When the Retail Commission Exemption Applies
At a glance
Paid on Commission? How Overtime Works and When the Retail Commission Exemption Applies: key takeaways
A visual summary of this post's main points. Read the article for context and limits.
Key point 1
Commissions count toward your regular rate, so overtime is not limited to your base wage
Key point 2
A narrow exemption in section 7(i) can remove overtime for some employees of retail or service establishments, but only if every condition is met
Key point 3
The employee's regular rate must be more than one and one-half times the federal minimum wage for every hour worked in the workweek
Car sales, furniture, electronics, mattress and other retail jobs often pay mostly by commission. Many workers are told that commission pay means no overtime. Sometimes that is wrong. The law treats commissions as pay for hours worked, and the exemption that lets some retail and service employers skip overtime has strict conditions.
In this article
Key takeaways
Commissions count toward your regular rate, so overtime is not limited to your base wage
A narrow exemption in section 7(i) can remove overtime for some employees of retail or service establishments, but only if every condition is met
The employee's regular rate must be more than one and one-half times the federal minimum wage for every hour worked in the workweek
More than half of the employee's pay over a representative period, at least one month, must come from commissions
The exemption covers retail or service establishments, so many sales jobs in other industries do not qualify
Keep commission statements, schedules and pay stubs so each workweek can be recalculated
Commissions Are Part of the Regular Rate
Overtime under the Fair Labor Standards Act is one and one-half times the regular rate for hours over 40 in a workweek, as explained in DOL Fact Sheet #23. The regulation at 29 CFR 778.117 says commissions, whether they are the only pay or paid on top of hourly wages or salary, are part of the regular rate. Our post on bonuses and differentials in overtime pay covers the same idea for other extra pay.
The Retail and Service Commission Exemption
Section 7(i) of the FLSA, found in 29 U.S.C. 207, lets an employer in a retail or service establishment avoid overtime for an employee only when all of these are true:
Retail or service establishment
The employer must be a retail or service establishment, a term explained in <a href="https://www.ecfr.gov/current/title-29/part-779" class="text-primary underline">29 CFR Part 779</a>. Many businesses that sell to other businesses do not qualify.
Regular rate above the threshold
The employee's regular rate must be more than one and one-half times the federal minimum wage for every hour worked in the workweek.
Commissions are more than half of pay
More than half of the employee's compensation over a representative period, not less than one month, must come from commissions.
If any one condition is missing, the exemption does not apply and overtime is owed.
Where Pay Problems Show Up
A slow month
A guaranteed draw or low sales can pull the regular rate below the threshold in a week, which means overtime is owed for that workweek.
Too little pay from commissions
If most of your pay is an hourly wage or salary and commissions are a small add-on, the more-than-half test may fail.
Commission paid but overtime ignored
Even where no exemption applies, commissions must be added into the regular rate before overtime is calculated.
Outside sales confusion
Selling on a showroom floor is not the same as outside sales. See our guide to <a href="/blogs/outside-sales-job-or-just-sales-calls-outside-sales-exemption-and-overtime-pay" class="text-primary underline">the outside sales exemption</a>.
What To Do Now
Save commission statements, schedules and pay stubs for each pay period, and note how many hours you actually worked each week. Commission that was earned but not paid is a separate problem, covered in our post on unpaid commissions. The Department of Labor overtime page explains the basics, and the Wage and Hour Division complaint page explains how to raise a claim. Deadlines apply, as described in how far back unpaid overtime can be recovered.
Free Case Review
If you are paid on commission, work long weeks and think your overtime was calculated wrongly, our team can review your pay records at no cost, if you are eligible.
Is a commission-only employee ever owed overtime?
Yes, unless the employer proves every condition of the retail or service exemption, or another exemption applies. Commissions are part of the regular rate used to calculate overtime.
What is a representative period for the commission test?
It is a period of at least one month that reflects the employee's normal pay pattern. The law does not allow the employer to pick only the best months.
Does a draw against commissions change the answer?
A draw is an advance on commissions, so the amounts are treated as commissions when earned. What matters is the actual regular rate and the share of pay from commissions.
Can my employer take back commissions to cover overtime?
Overtime owed under the FLSA cannot be avoided by a deduction or chargeback that pushes wages below what the law requires.
Primary Sources
- U.S. Code, 29 U.S.C. 207: Maximum hours (section 7(i) commission exemption)Accessed November 13, 2026
- Code of Federal Regulations, 29 CFR 778.117: Commission paymentsAccessed November 13, 2026
- Code of Federal Regulations, 29 CFR Part 779: The Fair Labor Standards Act as applied to retailers of goods or servicesAccessed November 13, 2026
- U.S. Department of Labor: Fact Sheet #23, Overtime Pay Requirements of the FLSAAccessed November 13, 2026
- U.S. Department of Labor: Overtime PayAccessed November 13, 2026
- U.S. Department of Labor: Contact the Wage and Hour Division to file a complaintAccessed November 13, 2026
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