Do Commissions Count Toward Overtime Pay?
Commissions generally enter a covered nonexempt employee's regular rate, while a narrow retail or service exemption may change federal overtime rights.
Do Commissions Count Toward Overtime Pay?
Generally, yes, for a covered nonexempt employee. Federal regulations state that commissions are payments for hours worked and must be included in the regular rate used to calculate overtime. A commission-based pay plan does not by itself remove overtime rights, although a specific exemption or another coverage rule may change the result.
Commission Pay Is Usually Part of the Regular Rate
The regular rate is not limited to an hourly wage. It generally includes commission earnings whether the commission is the employee's entire pay or is paid in addition to an hourly rate or salary. The plan's label is not controlling; the work performed, the compensation earned, the workweek, and any applicable exemption all matter.
The Calculation Is Based on Each Workweek
Federal overtime is generally calculated one workweek at a time. For a covered nonexempt employee, total includable straight-time earnings are divided by total hours worked to determine the regular rate, and the required overtime premium is then applied to hours over 40. The exact additional amount depends on whether the pay plan already covered straight time for every hour worked.
A Later Commission Can Require an Overtime True-Up
When a commission cannot be calculated until after the regular payday, the employer may initially pay overtime without that commission. Once the commission becomes known, federal rules require it to be allocated back to the workweeks in which it was earned and any additional overtime premium to be paid. If an exact weekly allocation is not possible, the regulations permit another reasonable and equitable allocation method.
The Retail or Service Commission Exemption Is Narrow
Section 7(i) can exempt certain commissioned employees of a retail or service establishment from federal overtime only when all required conditions are met. The employee's regular rate must exceed one and one-half times the applicable federal minimum wage in each overtime workweek, and more than half of total earnings in a representative period must consist of commissions. The establishment and compensation also must satisfy the federal retail-or-service rules.
The Federal Pay Test Does Not Replace State Law
A January 2026 Wage and Hour Division opinion letter states that the federal minimum wage is used for section 7(i)'s federal one-and-one-half-times test, even where a higher state minimum wage applies. The same letter explains that this does not excuse compliance with a more protective state or local minimum-wage or overtime law. State commission-payment rules and agreements may create separate rights as well.
Tips and Mandatory Service Charges Are Different
Tips paid by customers are not commissions for the section 7(i) exemption. Department of Labor guidance says a mandatory service charge paid to an employee may sometimes be treated as a commission, but only if the payment and every other requirement of the exemption are satisfied. Keep tip, service-charge, commission, draw, and hourly-pay entries separate when reviewing records.
Commission Pay Alone Does Not Prove Exempt Status
Other federal exemptions can apply to some outside-sales, executive, administrative, or professional employees, but each has its own duties and compensation tests. A title such as sales representative and the fact that some or all pay is commission do not alone establish an exemption. The actual duties, work location, authority, salary arrangement, and pay records should be reviewed.
Preserve Hours, Commission Statements, and Plan Terms
Keep daily and weekly time records, pay statements, commission plans, sales or service records, draw and chargeback entries, quota reports, commission-period statements, later adjustments, and messages explaining when a commission was earned or paid. For a claimed section 7(i) exemption, preserve the selected representative period and records showing the regular rate and commission share. Keep only records you are entitled to retain.
When to Get a Free Consult
Get a free consult if overtime was calculated from only the hourly wage, a delayed commission produced no later overtime adjustment, hours were not recorded, or an employer relied on a commission exemption without explaining the required conditions. This article is general information, not legal advice; rights depend on coverage, exemption status, actual duties, hours, pay-plan terms, the commission period, the establishment, records, and federal, state, and local law.
Primary Sources
- U.S. Code: 29 USC 207 Overtime, Regular Rate, and Commission ExemptionAccessed September 8, 2026
- eCFR: 29 CFR 778.117 CommissionsAccessed September 8, 2026
- eCFR: 29 CFR 778.119 Deferred Commission PaymentsAccessed September 8, 2026
- eCFR: 29 CFR 778.120 Alternative Commission AllocationAccessed September 8, 2026
- eCFR: 29 CFR 779.412 Commission Exemption RequirementsAccessed September 8, 2026
- eCFR: 29 CFR 779.415 Representative PeriodAccessed September 8, 2026
- DOL Fact Sheet #20: Commissioned Retail EmployeesAccessed September 8, 2026
- DOL Fact Sheet #56A: Regular Rate of PayAccessed September 8, 2026
- DOL Fact Sheet #17A: Federal Overtime ExemptionsAccessed September 8, 2026
- DOL Opinion Letter FLSA2026-4: Section 7(i) Commission ExemptionAccessed September 8, 2026
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