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Retail Commission Overtime Exemption: The FLSA Section 7(i) Test

Commission pay does not automatically eliminate overtime. The federal Section 7(i) exemption applies only when the employer and employee satisfy three separate conditions and maintain records supporting each one.

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Retail Commission Overtime Exemption: The FLSA Section 7(i) Test

Quick answer: The employee must work for a qualifying retail or service establishment, earn a regular rate above one and one-half times the applicable minimum wage in overtime weeks, and receive more than half of total earnings from commissions during a representative period.

Condition 1: Retail or service establishment

The establishment must qualify as retail or service under the FLSA. Generally, at least 75 percent of annual dollar volume must be sales of goods or services not for resale and recognized as retail in the industry.

The analysis applies to the establishment employing the worker, not automatically to an entire enterprise or central office.

Condition 2: Regular rate test

For every workweek in which overtime hours are worked, the employee’s regular rate must exceed one and one-half times the applicable minimum wage.

State or local minimum wages may make the threshold higher than the federal calculation.

Condition 3: More than half from commissions

More than half of the employee’s total earnings during a representative period must consist of commissions. The representative period must be at least one month and not longer than one year.

Tips are not commissions for purposes of Section 7(i). Mandatory service charges may receive different treatment depending on the facts.

Example

A salesperson works 48 hours. During the selected representative period, 60 percent of earnings are bona fide commissions, the establishment qualifies as retail, and the workweek regular rate exceeds 1.5 times the applicable minimum wage. The exemption may apply.

If commission earnings fall to 45 percent during the representative period, one of the three conditions fails and overtime may be due.

Records are essential

State law warning

Some states do not recognize the federal exemption or impose additional conditions. California, for example, has its own commissioned-employee overtime exemption requirements.

Frequently Asked Questions

Does every commissioned salesperson lose overtime?

No. The Section 7(i) exemption applies only when all three federal conditions are met.

How much must the regular rate be?

It must exceed one and one-half times the applicable minimum wage in overtime workweeks.

How much income must come from commissions?

More than half of total earnings during the representative period.

Can tips count as commissions?

No. Customer tips are not commissions for Section 7(i).

How long is the representative period?

At least one month and no more than one year.

Official Sources

This article is for general educational purposes and is not legal, tax, accounting, or payroll advice. Federal, state, local, contractual, and industry-specific rules may produce a different result.

Reviewed for accuracy by the OvertimePayUSA editorial team using official labor sources such as the U.S. Department of Labor and state agencies.
Official Sources

This calculator is for educational purposes only. Consult your employer or a labor attorney for advice specific to your situation.

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Frequently Asked Questions

Can my employer require me to work overtime?
Yes. Employers can require overtime work. However, they must pay the required overtime premium (1.5x or higher per state law) for hours over the threshold. Refusing to work overtime may result in termination, but employers cannot refuse to pay overtime premiums that are legally owed.
What should I do if I think I'm owed unpaid overtime?
Document everything: save pay stubs, time records, emails, and any communications about hours worked. Calculate what you believe is owed. Contact your employer in writing first. If they don't respond satisfactorily, file a complaint with your state Department of Labor or the U.S. Department of Labor Wage and Hour Division. Consider consulting an employment attorney for large amounts.
Is my salaried position automatically exempt from overtime?
No. Many salaried positions still qualify for overtime pay. Exemption requires: (1) earning above the minimum threshold (~$35,500 federally, varies by state), and (2) spending more than 50% of time in exempt duties (executive, professional, administrative). If unsure, file a wage claim or consult an employment attorney.
Can I get overtime pay if I work multiple jobs?
Federal overtime laws (FLSA) typically count only hours for a single employer. However, some states have more generous rules. Hours worked for different employers at the same time usually don't combine for overtime purposes unless you're an independent contractor. Check your state's Department of Labor for specific rules.
What's the statute of limitations for claiming unpaid overtime?
Federally, you have 2-3 years to file a lawsuit for unpaid wages (3 years for willful violations). State laws vary: California allows 3-4 years, New York allows 6 years. For administrative complaints, the timeframe is often shorter (1-2 years). Act quickly if you believe you're owed wages.
Do I have to be paid for meal breaks?
If you work during a meal break or cannot take a true break away from your workstation, that time must be paid. If you take an actual, uninterrupted break (usually 20+ minutes), it can be unpaid. Rules vary by state—check your state's Department of Labor for specifics.
Does every commissioned salesperson lose overtime?
No. The Section 7(i) exemption applies only when all three federal conditions are met.
How much must the regular rate be?
It must exceed one and one-half times the applicable minimum wage in overtime workweeks.
How much income must come from commissions?
More than half of total earnings during the representative period.
Can tips count as commissions?
No. Customer tips are not commissions for Section 7(i).
How long is the representative period?
At least one month and no more than one year.
⚖️ Statutory Legal Authority: Overtime pay calculations strictly follow the Fair Labor Standards Act (FLSA), 29 U.S.C. § 207 and U.S. Department of Labor (WHD) Regulations 29 C.F.R. Part 778. State daily overtime rules comply with California Labor Code § 510, Colorado COMPS Order #38, and Alaska Stat. § 23.10.060.