We have often written about how the FLSA is deceptively tricky; while the basic rules of the law are simple: pay minimum wage, pay time and half for hours worked over 40 in a week and keep adequate records of time worked and wages paid.
The cosmetics company Ulta probably thought that it was following the law when it paid an aesthetician time and one half of her hourly rate for hours worked over 40. But a Chicago federal judge says that her FLSA complaint can go forward because she adequately alleges that not only did the company fail to pay her when she worked through her meal and break times but also that her rate of pay, on which her overtime rate was calculated, failed to include her commissions.
Commissions payments can confound an employer trying to calculate the right overtime rate. First of all, commissioned employees often meet a FLSA exemption from overtime either as a white collar or outside salesperson exemption. Retail establishment employees who earn more than 50% of their wages by commission are also exempt from overtime.
If an employee does not meet one of these exemptions, then the calculation of the right overtime rate is the next step. Generally, the regular rate of pay for overtime purposes is calculated by taking the hourly rate including commissions and dividing it by the total hours worked. Employers must carefully document the hours worked and if paying a non-exempt part salary/part commissioned employee on a salary basis, what number of hours worked per week the salary covers.
Employers, like Ulta in this case or any medium to large sized employer, are encouraged to audit and correct any pay problems before they reach the lawsuit stage. The problem is of course that if one employee has a valid claim, then that probably indicates that a pay problem exists which could turn into a series of claims from employees or a class action claim, both of which can be very costly and time consuming for employers.
When in doubt, employers should always consult a lawyer experienced in the complexities of the FLSA and applicable state wage laws.
