Commission-only jobs are legal in the United States, but only in narrow circumstances. If you are an employee, the Fair Labor Standards Act still requires that your commissions add up to at least the federal minimum wage of $7.25 an hour for every hour you work in every single workweek, plus overtime, unless you fit one of two specific exemptions. If you are a genuine independent contractor, none of those wage rules apply. Everything turns on which category you’re actually in and whether an exemption fits.
The Default Rule: Minimum Wage Every Workweek
The FLSA sets minimum wage, overtime, and recordkeeping standards for most private-sector and government workers.1U.S. Department of Labor. Wages and the Fair Labor Standards Act Unless a specific exemption applies, a covered employee must receive at least $7.25 per hour and overtime at one-and-a-half times the regular rate for hours beyond 40 in a workweek.2U.S. Department of Labor. Handy Reference Guide to the Fair Labor Standards Act Paying by commission does not remove these obligations. If you work 50 hours and earn $300 in commissions, your employer still owes the difference between $300 and what minimum wage plus overtime require for those 50 hours.
Each workweek stands alone. An employer cannot average a strong week against a slow week to satisfy the minimum wage floor. If your commissions fall short in any single workweek, the employer has to make up that gap for that workweek, no matter what the next week looks like.2U.S. Department of Labor. Handy Reference Guide to the Fair Labor Standards Act
Draws Against Commission
Many commission employers use a draw, an advance against future commissions. A recoverable draw functions like a loan: the employer advances a set amount each pay period and deducts it from later commission earnings, and if you never catch up, you technically owe the balance. A non-recoverable draw is a guaranteed payment you keep no matter what. Either way, the minimum wage floor still applies to every workweek. If commissions plus draw still fall short of $7.25 per hour, the employer must cover the difference.1U.S. Department of Labor. Wages and the Fair Labor Standards Act
Chargebacks and Required Expenses
Two situations quietly push commission workers below the legal minimum. The first is chargebacks, where an employer reclaims a paid commission because the customer returned merchandise or cancelled. The Department of Labor treats losses from customer non-payment or cancellation as an employer cost. Deducting those losses from your pay is unlawful to the extent it pushes wages below minimum wage or reduces overtime owed.3U.S. Department of Labor. Fact Sheet 16 – Deductions From Wages for Uniforms and Other Facilities Under the FLSA
The second is required business expenses. Under the FLSA’s kickback rule, employer-required costs like tools, mandatory travel, or a required uniform are subtracted from your earnings when calculating whether minimum wage was met.4eCFR. 29 CFR Part 531 – Wage Payments Under the Fair Labor Standards Act of 1938 A gross commission that looks acceptable can shrink below the floor once these costs come out.
Outside Sales: The Only Real Commission-Only Lane
Outside sales is the single FLSA exemption where commission-only pay carries no minimum wage or overtime obligation at all. The statute exempts qualifying outside salespeople from both the minimum wage provisions of Section 206 and the overtime provisions of Section 207.5Office of the Law Revision Counsel. 29 USC 213 – Exemptions No salary threshold or salary basis test applies.6U.S. Department of Labor. Fact Sheet 17F – Exemption for Outside Sales Employees Under the FLSA
Two conditions both have to be met. Your primary duty must be making sales or obtaining orders and contracts for services or use of facilities. And you must customarily and regularly perform that work away from the employer’s place of business, out in the field rather than from a company office or call center.6U.S. Department of Labor. Fact Sheet 17F – Exemption for Outside Sales Employees Under the FLSA
Work supporting your own sales activity, like writing sales reports, updating catalogs, planning routes, and attending sales conferences, counts as exempt activity. Federal regulations use a primary duty analysis rather than a strict time percentage, though spending more than half your working hours on exempt sales work generally satisfies the test.7eCFR. 29 CFR Part 541 – Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees Inside salespeople and call center workers labeled as “outside sales” to skirt overtime typically don’t qualify, and misclassification here is a common source of wage claims.
The Retail Commission Exemption Covers Only Overtime
Section 7(i) of the FLSA offers a narrower exemption that removes the overtime obligation only. Minimum wage still applies for every hour worked.8Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours Three conditions must all be met at once:
- The employer must be a retail or service establishment, meaning at least 75 percent of its annual sales revenue comes from transactions not for resale. Car dealerships and furniture stores commonly qualify.
- Your regular rate of pay must exceed one-and-a-half times the applicable minimum wage in any workweek where overtime hours are claimed. At the federal $7.25, that threshold is $10.88 per hour; where a state minimum is higher, the threshold climbs with it.
- More than half of your total compensation over a representative period of at least one month, and no more than one year, must come from commissions.
If any one of the three fails, the exemption disappears entirely and overtime is owed at time-and-a-half for all hours beyond 40.9U.S. Department of Labor. Fact Sheet 20 – Employees Paid Commissions by Retail Establishments Who Are Exempt Under Section 7(i) From Overtime Under the FLSA A car salesperson exempt under 7(i) still earns minimum wage for every hour worked. The exemption removes only the overtime premium.
Independent Contractors Can Legally Work Pure Commission
The FLSA’s wage protections cover employees, not independent contractors. A worker who genuinely operates as an independent business can legally accept commission-only pay with no minimum wage floor and no overtime. The IRS reports these workers on Form 1099, and the hiring company generally does not withhold income taxes, Social Security, or Medicare.10Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
What matters is the actual working relationship, not the label in your contract. Federal enforcement applies an economic reality test that looks at whether you are economically dependent on the company (employee) or in business for yourself (contractor). The core inquiry looks at control and financial risk. A true contractor sets their own schedule, chooses their own methods, can work for competing clients, invests their own money in equipment or marketing, and can earn more or lose money based on their own business decisions. A worker whose hours, leads, and methods are dictated by the company, and who can only earn more by working more hours, looks like an employee regardless of what the paperwork says.
Misclassification is expensive for the company: back wages, unpaid payroll taxes, and potential penalties.10Internal Revenue Service. Independent Contractor (Self-Employed) or Employee? The regulatory framework for this test has been in flux. The Department of Labor finalized a multi-factor economic reality test in January 2024, and by May 2025 the agency said it would no longer apply that framework in its own investigations and is proposing a replacement. The 2024 rule still governs private lawsuits in the meantime.11Federal Register. Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act
State Law Can Raise the Floor
Federal rules set the minimum. Most states have a minimum wage above the federal $7.25, and some jurisdictions are now above $16 or $17 per hour.12U.S. Department of Labor. State Minimum Wage Laws Where state and federal rules conflict, the employer must follow whichever is more protective. A commission structure that clears the federal floor can still violate a state one.
State law also reaches areas the FLSA does not. Most states require earned commissions to be paid out after an employee leaves, though deadlines vary from the final day of employment to the next regular payday. When a commission is “earned” — at closing, at customer payment, or at some other contractual milestone — is defined by state law and contract, and it is one of the most litigated questions in commission disputes. Some states also require reimbursement of necessary business expenses regardless of whether the worker’s pay would stay above minimum wage without it. These protections stack on top of the federal rules.
If the Math Doesn’t Work
An employer who fails to pay minimum wage or overtime owes the unpaid wages plus an equal amount in liquidated damages, effectively doubling the bill, and courts award reasonable attorney’s fees. Claims carry a two-year statute of limitations, extended to three years for willful violations.13Office of the Law Revision Counsel. 29 USC 216 – Penalties
If you’re paid on commission and think your effective hourly rate is falling below the legal floor, keep your own contemporaneous log of hours worked. Employers of non-exempt commission workers are required to track daily and weekly hours, the basis of pay, the regular rate, and all wage additions and deductions.14U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the FLSA When those records are incomplete, your own notes carry significant weight in a Department of Labor investigation or a court case. Before signing a commission-only offer, check your state’s wage laws, confirm whether an exemption actually applies to your role, and do the workweek-by-workweek math on what your effective hourly rate would look like in a slow week.