U.S. Department of Labor 

Employment Standards Administration 

Wage and Hour Division 

 (Revised July 2008) 

Fact Sheet #20: Employees Paid Commissions By Retail Establishments Who 

Are Exempt Under Section 7(i) From Overtime Under The FLSA 

This fact sheet provides general information concerning the application of the Section 7(i) overtime exemption 

from the FLSA to employees of retail and service establishments, who are paid on a commission basis in whole 

or part. 

Characteristics 

Retail and service establishments are defined as establishments 75% of whose annual dollar volume of sales of 

goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular 

industry. 

Requirements 

If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, 

three conditions must be met: 

1. the employee must be employed by a retail or service establishment, and 

2. the employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for 

every hour worked in a workweek in which overtime hours are worked, and 

3. more than half the employee's total earnings in a representative period must consist of commissions. 

Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay 

must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay. 

The representative period for determining if enough commissions have been paid may be as short as one month, 

but must not be greater than one year. The employer must select a representative period in order to determine if 

this condition has been met. 

If the employee is paid entirely by commissions, or draws and commissions, or if commissions are always 

greater than salary or hourly amounts paid, the-greater-than-50%-commissions condition will have been met. If 

the employee is not paid in this manner, the employer must separately total the employee's commissions and 

other compensation paid during the representative period. The total commissions paid must exceed the total of 

other compensation paid for this condition to be met. 

To determine if an employer has met the "more than one and one-half times the applicable minimum wage" 

condition, the employer may divide the employee's total earnings attributed to the pay period by the employee's 

total hours worked during such pay period. If the result is greater than time and one-half the minimum wage, 

this condition of the exemption has been met. 

Hotels, motels and restaurants may levy mandatory service charges on customers which represent a percentage 

of amounts charged customers for services. If part or all of the service charges are paid to service employees, 

that payment may be considered commission and, if other conditions in section 7(i) are met, the service 

employees may be exempt from the payment of overtime premium pay. 
Typical Problems 

Regulations require that employers maintain accurate records of hours worked each workday, hours worked 

each workweek, and earnings and wages paid. Without hours worked and earnings records, the employer will 

be unable to substantiate that all conditions for the exemption have been met. In addition, the employer must 

select a representative period of at least one month, but not more than one year, which typifies the 

characteristics of the employee's earning pattern, in order to test whether the employee is paid principally by 

commissions. 

Tips paid to service employees by customers may never be considered commissions for the purposes of this 

exemption. 

An employee is employed by the central office of a retail chain enterprise as a sales instructor working in the 

various retail establishments. Since this employee is employed by the central office and not "by" the retail 

"establishment", the exemption does not apply. 

Where to Obtain Additional Information 

For additional information, visit our Wage-Hour website: http://www.wagehour.dol.gov and/or call our 

Wage-Hour toll-free information and helpline, available 8am to 5pm in your time zone, 1-866-4USWAGE 

(1-866-487-9243).

This publication is for general information and is not to be considered in the same light as official statements of 

position contained in the regulations. 

U.S. Department of Labor 1-866-4-USWAGE 

Frances Perkins Building TTY: 1-866-487-9243 

200 Constitution Avenue, NW Contact Us

Washington, DC 20210