FLSA/Wages

How Minimum Wage Requirements Impact Commissions-Based Pay, Payroll Deductions

In this article series, we provide a refresher on the basics of the Fair Labor Standard Act’s (FLSA’s) requirements.  In our previous article, we discussed the FLSA’s minimum wage requirements applied to tipped employees and piece-rate workers.  Here we discuss how they impact employees paid on a commission basis and payroll deductions.payroll deductions

Commissions

Employees paid either partially or solely on a commission basis must receive at least the minimum wage for weeks in which their earnings fall short of the minimum wage. Also, you can’t recover any part of the minimum-wage payment from the employee’s earnings in weeks when his or her commissions exceed the minimum wage.

Caution: Employers may automatically assume that sales employees who are paid partially or solely on a commissioned basis are exempt from the recordkeeping, minimum wage, and overtime requirements of the FLSA. This is a fallacy. Employees’ duties must meet certain very strict criteria (described later in the materials) to qualify for what is known as the “outside sales” exemption from the FLSA. Many types of sales positions are, in fact, not exempt.

Payroll Deductions

The general rule is that you cannot make payroll deductions that cut the employee’s pay to a level below the minimum wage. Examples of such illegal deductions include:

  • Fines for infractions, poor work, or other disciplinary reasons
  • Deductions for damage to company property
  • Repayment of shortages
  • Repayment for employee theft, unless the employee has been convicted
  • Voluntary payments from an employee that don’t involve payroll deductions, such as deposit or cash bond required from an employee at the time of hiring

Remember, these kinds of deductions may not be illegal in and of themselves under the FLSA—they may only be illegal if they result in an employee being paid less than minimum wage for the applicable pay period. Also keep in mind that many states have their own laws addressing these issues, which may impose stricter standards.

The DOL has determined that employers are permitted to make certain deductions, even if they do bring the employee’s pay below the minimum wage, including:

  • Taxes
  • Reasonable cost of board and lodging
  • Union dues
  • Insurance premiums paid
  • Payments to independent insurance companies
  • Savings plans requested by the employee
  • Repayment of loans, as long as the employer has no connection to the lender
  • Repayment of free-and-clear cash advances by an employer to an employee (but not a loan, with interest, from an employer to an employee)
  • Wage attachments, garnishments (but beware of possible state limitations)