In a victory for California-based commissioned sales employees, the California Supreme Court ruled on July 14, 2014 in Peabody v Time Warner Cable, Inc. that employers must pay commissioned sales employees sufficient wages each pay period in order to satisfy the commissioned overtime sales exemption. Employers cannot carry over commission wages from one pay period to other pay periods to meet state compensation requirements.
Commissioned Employees Must Earn Sufficient Wages in Any Given Pay Period
In California, in order for a commissioned employee to be exempt from overtime wages, the employee must earn at least 1.5 times the state minimum wage (or $13.50 an hour as of July 1, 2014, and $12.00 an hour between 2008 and June 30, 2014) and earn half of their compensation in commissions. The Time Warner Cable decision confirms that if an employer wants to maintain commissioned sales employees as exempt from overtime, it must pay commissioned sales employees at least 1.5 times minimum wages each pay period. In doing so, the Supreme Court held that employers must pay commissioned employees at least bi-monthly and must base the 1.5 times calculation upon each pay period in which compensation was paid.
Time Warner Ruling Impacts Sales Employees across Industries
Many employer commission plans across industries pay sales employees once a month or even at longer intervals, and do not pay those employees at least 1.5 times the minimum wage each pay period for all hours worked. Some reassign commission wages from a different pay period to establish the minimum earnings threshold of 1.5 times minimum wage for all hours worked in each pay period.
The Time Warner Cable decision holds this does not meet state compensation requirements. These employers are in violation of state requirements and need to immediately update their payment plans to commissioned employees so employees are earning sufficient wages in any given pay period.
Employees working under these unlawful plans and who have worked more than eight hours in a day and/or 40 hours in a week are due overtime wages. Employees must be paid overtime wages for any overtime worked in pay periods not qualifying for the commissioned sales exemption.