Legal Counsel On Dealing With Commissioned Employees
Many of our Portland business clients pay their employees on a commission basis. There’s nothing wrong with that; in fact, it is an important way to keep overhead down while incentivizing employees on a success basis.
But just because you’ve hired an employee on a commission basis, it doesn’t mean that Oregon’s wage claim statutes don’t apply to your business at all. Strange, right?
Maybe a little, but a little understanding and careful planning can preserve for your business all of the benefits of having a commission-based employee force.
What Is Different About Commission Agreements?
Most of us know what a commission is. It’s commonly used for a relationship with an employee whereby the employee is paid a percentage of total sales or certain sales.
An experienced Portland employment law attorney will tell you that commission agreements with employees should be in writing and they should be aimed at clarifying the rights of the employer and employee with an eye toward avoiding wage claims or employee dispute litigation in Oregon courts.
Most importantly, Oregon minimum wage and overtime laws apply to commissioned employees unless they are exempt. This means that employees must receive no less than the applicable minimum wage and must be compensated 1.5 times their hourly rate for hours worked in excess of 40 per week. Under federal law, commissions must be included when an employer calculates the average hourly rate.
How does one compute an employee’s regular rate of pay? To compute the regular rate of pay, an employer adds the commission earnings to the regular earnings and divides by the number of hours worked in that week.
Outside salespeople are exempt from Oregon’s wage and hour laws. Outside salespeople are those employees who sell goods or services away from the employer’s business location. This exemption applies only if the salesperson’s hours on nonoutside sales do not exceed 30 percent of the total hours worked by nonexempt employees in a workweek.
Some commissioned employees are exempt from overtime rules, but not from Oregon’s minimum wage laws. The overtime rules do not apply to employees who sell or service autos, trailers, trucks or farm equipment, so long as the employer is primarily involved in selling these items and doesn’t actually manufacture the items.
Also exempt from overtime laws are commissioned employees in retail or service establishments provided that the employee’s regular rate of pay is 1.5 times the minimum wage and over 50 percent of the employee’s pay for a period of at least a month is commissions earned on goods or services sold.
Oregon and federal law on handling commissioned employees can be overlapping and, at times, confusing. This makes proper and thorough planning and documentation all the more critical. At Slinde Nelson, when our business clients end up in litigation with their former employees over proper classification, we can guide them through the maze of employment laws and find the quickest path to a resolution.