California law requires that most workers in California be paid at least the state minimum wage for all hours worked and overtime compensation at not less than one and one-half the regular rate of pay for all hours worked in excess of 8 hours in any given workday or in excess of 40 hours in any given workweek. This mandate is expressed in California Labor Code section 1194: “Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.” However, California law does provide an exemption from minimum wage, overtime compensation, and rest break, and meal break requirements for employees whose employment meets the test for any one of several specified exemptions. These exemptions include an exemption for bona fide Outside Salespersons. In contrast, the exemption for Commissioned Salespersons only exempts bona fide commissioned salespersons from overtime compensation requirements.
Outside Salesperson ExemptionAn outside salesperson is someone 18 years of age or older who regularly spends more than half their working time (based on how the employee actually spends his or her time) away from the employer's business location, usually negotiating for transactions of a particular product, service, or use of facilities with clients and potential customers. An employer is not required to pay overtime compensation for work in excess of 8 hours in a workday or 40 hours in a workweek or minimum wage for all hours worked to individuals who meet the requirements of the outside salesperson exemption. See California Labor Code section 1171 and California Industrial Welfare Commission wage orders. However, the employer must establish that the employee is in fact a bona fide outside salesperson for this rule to apply.
An example of an outside salesperson would be the proverbial door-to-door salesperson, selling household products such as vacuum cleaners or refrigerators to people at their front doorstep. However, simply being the deliverer of a product or having the specific job title of an outside salesperson is never enough in the eyes of the law for the exemption to apply. The duties and compensation of the employee must satisfy the requirements of the outside salesperson exemption; otherwise, the employer must pay overtime compensation to the employee.
For instance, agents driving and delivering bottled water to customers were NOT outside salespersons unless they spent the majority of their time actually selling the product, as opposed to merely delivering it to customers. Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785. “The employer bears the burden of proving that the outside salesperson exemption applies.” The outside salesperson exemption requires scrutiny of both the job description for the position held by the employee and the employee's own work habits. Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 26.
Commissioned Salesperson ExemptionA commissioned salesperson is exempt from overtime if she earns over half of her income from commissions and her income is more than one and one-half times the minimum wage rate of California. In making the determination as to whether the employee’s income is more than one and one-half times the minimum wage, the exemption only applies to pay periods when the employee is actually paid more than one and one-half times the minimum wage. “An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.” This interpretation of the law is “consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could . . . reassign commission wages paid weeks or months later in order to satisfy the exemption's minimum earnings prong.” Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 669. Reassignment of wages from one pay period to another also violates California Labor Code section 204, which, with certain exceptions, mandates that wages “earned by any person in any employment are due and payable twice during each calendar month, on days designated in advance by the employer as the regular paydays.”
It is important to note that a careful examination of whether the employee's income attributed to commissions genuinely qualifies as commission pay often will make or break this classification. An employer cannot give an employee a bonus, for instance, and call it a commission just for the purposes of escaping overtime compensation laws.
In addition, commissioned salespersons must actually be principally involved with selling products or services in order to be exempt. Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557 (auto mechanics who were paid on commission from amounts charged to customers were not exempt, as they only rendered repair services and were not involved in selling their services to customers.)
A good example of a commissioned salesperson would probably be the typical car salesman. With every sale he earns a commission or a kind of percentage bonus for sales of cars he manages to move off the lot. Because he earns a considerable amount of commission from selling each car, the salesman may be exempt from overtime compensation laws, depending on whether he makes over half of his income from the commissions. To qualify as a “commission,” the commission must be the product of a direct sale to a customer and must be a percentage of the price of the product or service sold. Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557, 562-564.
Note: the Commissioned Salesperson exemption does not exempt commissioned salespersons from California’s minimum wage or meal or rest period requirements. See Vaquero v. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98, 105-114.
The classification of a worker is not determined by title but instead is determined by both earnings, if applicable, and the actual job duties of the worker.
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