Commission pay laws treat a commission as a wage the moment you earn it under your agreement, which means your employer has to pay it on time, follow the written terms, meet minimum wage and overtime rules, and settle up when you leave. The Fair Labor Standards Act sets the federal floor, and most states add stricter requirements on top, particularly around written contracts and final paychecks. If an employer refuses to pay, the same enforcement tools that apply to unpaid hourly wages apply to unpaid commissions, including doubled damages in many cases.
Commissions Are Wages Once Earned
No federal law requires an employer to offer commissions at all. But once an employer promises them, the FLSA and state wage laws classify commissions as wages. That flips the switch from optional to mandatory. Your employer cannot treat an earned commission as a discretionary bonus, withhold it because business slowed down, or pay it off the books.
The consequences of getting this wrong are substantial. Unpaid commissions expose the employer to the same liability as unpaid hourly wages, including potential liquidated damages that double what you’re owed. Workers can file wage claims with either their state labor department or the federal Wage and Hour Division to recover the amount.1Worker.gov. Filing a Complaint With the U.S. Department of Labor’s Wage and Hour Division (WHD) Standard payroll rules apply too: tax withholding, Social Security, and Medicare come out of commission pay just as they do from any other check, and unauthorized deductions are equally prohibited.2Internal Revenue Service. Tax Withholding
When a Commission Is Legally Earned
A commission becomes a legal debt only after it hits the “earning” trigger set in your agreement. Before that point, it’s a potential payment your employer can restructure or eliminate. After that point, it’s a wage the employer generally cannot claw back or renegotiate.
The trigger varies. Common ones include a customer signing a contract, goods shipping, or the employer collecting payment from the buyer. The choice matters because weeks or months can pass between those events, and if you leave the company in that gap, the definition determines whether the commission is yours.
“When the sale closes” sounds clear until you look closely. Closing could mean the signature, the shipment, or the cleared payment. A well-drafted agreement names the specific event. If yours doesn’t, courts generally resolve the ambiguity in the worker’s favor.
What the Written Agreement Must Cover
Several states, including California, New York, Arizona, and Arkansas, require commission arrangements to be in writing and signed by both parties. Even in states without a specific statute, the written agreement is what controls when a dispute arises. It should spell out the commission rate or formula, the pay period, the earning trigger, what happens to pending commissions if you leave, and whether chargebacks apply.
You should receive a copy when you’re hired and again whenever the plan changes. Modifications generally require a new signature to be enforceable going forward. If your employer cuts the commission rate mid-quarter without your written consent, the original rate typically still governs the sales you had already completed under the old plan.
Federal law also requires employers to keep payroll records for at least three years and the underlying calculation records for at least two.3U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act (FLSA) An employer who can’t produce those records in a wage dispute is in a weak position.
Minimum Wage and Overtime for Commissioned Workers
Commission-only pay is legal, but your total pay for each pay period still has to average at least the federal minimum wage of $7.25 per hour for every hour worked, or your state’s minimum wage if it’s higher.4Office of the Law Revision Counsel. 29 USC 206 – Minimum Wages When commissions don’t clear that floor for a given pay period, your employer must make up the difference. There’s no exception for slow weeks.
Overtime is more complicated because two FLSA exemptions frequently apply to commissioned workers.
Retail and Service Establishment Exemption
Under Section 7(i) of the FLSA, an employee of a retail or service establishment is exempt from overtime only if both of these are true: the regular rate of pay exceeds one and a half times the applicable minimum wage, and more than half of total compensation over a representative period of at least one month comes from commissions.5Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours At the federal $7.25 minimum, the regular rate must exceed $10.88 per hour. If either condition fails in a given period, overtime at time-and-a-half is owed for every hour over 40. The representative period can’t be shorter than a month, though employers may use longer periods.6eCFR. 29 CFR Part 779 Subpart E – Employees Compensated Principally by Commissions
Outside Sales Exemption
Employees whose primary duty is making sales and who regularly work away from the employer’s place of business qualify for the outside sales exemption, which removes both minimum wage and overtime protections.7Office of the Law Revision Counsel. 29 USC 213 – Exemptions Working away from the office is the defining feature. A salesperson who dials from a cubicle doesn’t qualify, even if every dollar of pay is commission.8eCFR. 29 CFR Part 541 Subpart F – Outside Sales Employees
If neither exemption fits, standard overtime rules apply. Commissions earned in a workweek get folded into the regular rate calculation, and the employer must pay time-and-a-half for hours over 40.9U.S. Department of Labor. Fact Sheet 23 – Overtime Pay Requirements of the FLSA
Draws, Chargebacks, and Deductions
A draw is an advance against future commissions, meant to smooth out uneven income. Its legal treatment depends on the type. With a recoverable draw, if your commissions fall short of the advance, the deficit rolls forward and gets deducted from future commissions. If you leave with a negative balance, the employer may claim you owe it back, though state law often limits what can be recovered from other amounts owed to you like accrued vacation.
A non-recoverable draw functions as a guaranteed minimum. Anything you earn above it is yours; anything below stays with you as well, with no carry-forward. It’s more favorable to the worker and less common.
Either way, your total pay in each pay period must still clear minimum wage. And one federal appellate court has found that requiring an employee to repay a draw balance after termination can violate the FLSA’s ban on wage kickbacks, even where deducting the same balance from commissions during employment is allowed. The distinction is between redirecting money not yet paid and clawing back money already delivered.
Chargebacks are commission reversals for sales that fell through, such as a cancellation, return, or nonpayment. If your written agreement authorizes chargebacks in specific situations, they’re generally enforceable. What isn’t enforceable is shifting general business expenses onto commissioned workers. Insurance premiums, equipment, administrative overhead, and credit card processing fees are the employer’s cost of doing business, and pushing them onto you through commission reductions violates wage protection laws in most jurisdictions.
No deduction, even a legitimate chargeback, can drop your total pay below minimum wage for the pay period.4Office of the Law Revision Counsel. 29 USC 206 – Minimum Wages Deductions that aren’t authorized in writing can constitute wage theft, with back-pay liability and penalties on top.
Getting Paid When You Leave
Commissions that hit their earning trigger before your last day are wages you’re owed, and most states set strict deadlines for delivering final pay. Some require immediate payment on termination; others give a few days for a resignation. Penalties for missing the deadline can accrue as a day’s wages for each day late, up to a statutory cap.
Deals that hadn’t fully vested when you left are trickier. Whether you’re owed those commissions depends on the agreement and your state’s law. Some agreements define “earned” to include work substantially completed during employment. Others require you to be an active employee on the payout date. That second approach is increasingly scrutinized.
Courts generally disfavor clauses that forfeit compensation for work already performed. Language requiring active employment on the payout date draws particular skepticism when an employer terminates someone right before a commission comes due. If you completed the work, the earning conditions were met, and the amount is calculable, many jurisdictions treat the commission as an earned wage that can’t be forfeited by a timing clause.
On your way out, document every pending deal and its status. Ask for written confirmation of any commissions the employer acknowledges are owed. Keep copies of your agreement, your pay records, and the correspondence.
If Your Employer Won’t Pay
You have two main routes for unpaid commissions: a complaint to the federal Wage and Hour Division or a claim with your state labor department. Many workers start with the state agency because state remedies are often stronger, but federal claims apply nationwide. Filing is confidential, and retaliation for filing is prohibited.10U.S. Department of Labor. How to File a Complaint
Under the FLSA, an employer that violates minimum wage or overtime rules owes the unpaid wages plus an equal amount in liquidated damages, doubling the recovery, and pays your attorney’s fees and court costs.11Office of the Law Revision Counsel. 29 USC 216 – Penalties Repeated or willful violations of minimum wage or overtime provisions also carry civil money penalties, set at $2,515 per violation as of 2025, with annual inflation adjustments.12U.S. Department of Labor. Civil Money Penalty Inflation Adjustments Back pay recovery is also available through Labor Department action.13U.S. Department of Labor. Back Pay
The clock is short. You generally have two years from the violation to file a federal claim, extended to three years if the violation was willful.14Office of the Law Revision Counsel. 29 USC 255 – Statute of Limitations Evidence disappears, witnesses move on, and employers sometimes reclassify payments in their records. If you think commissions are being withheld improperly, gather documentation now and file promptly.