California Employee Rights Advocate : California Labor Attorney & Lawyer : Southern CA Employment Law : Los Angeles, Orange County : United Employees Law Group

If California labor law’s dictate you should be classified as a non-exempt employee,  in which you are entitled to overtime pay at 1 ½ to 2 times your straight time rate. And you are promised bonuses for reaching certain goals or you are entitled to commissions, then according to California labor law’s a special calculation must be made that increases your regular hourly overtime rate.   California wage law provides that when a non-exempt employee works hours in excess of eight in any workday or 40 in any workweek, employers must compensate the employee at 1 ½ to 2 times the employee’s regular rate of pay depending on the total number of hours worked. The “regular rate of pay” comprises more than just the employee’s hourly rate of pay it includes many different kinds of monetary remuneration an employee earns for his labor, including commissions and bonuses. 29 U.S.C. 207(e). 

When calculating the regular rate of pay, employers must follow specific rules depending on the type of income in question. Where an employee earns commissions or bonuses, the Department of Labor Standards Enforcement (“DLSE”)  uses the following rule to incorporate the additional compensation into the employee’s regular rate of pay:

“Compute the regular rate by dividing the total earnings for the week, including earnings during overtime hours, by the total hours worked during the week, including the overtime hours. For each overtime hour worked, the employee is entitled to an additional one-half the regular rate for hours requiring time and one-half and to an additional full rate for hours requiring double time.” DLSE Manual, Section 49.2.1.2 

For example, one type of incentive compensation may provide additional compensation if the store performs at a certain level. A company’s bonus plan could provide that a bonus will be paid to employees for increasing sales of specified products, increase profitability, improve customer handling and enhance quality of service. It could be referred to as an Incentive Program that requires employees to reach attendance goals to be eligible. The plan may also specify the payout schedule: eligible employees receive both quarterly and year end payouts. Another type of incentive may also pay certain hourly employees additional compensation, or a commission, for the sale of various products.

Employers must include these nondiscretionary bonuses along with other earnings to determine an employee’s regular rate on which overtime pay is computed. A bonus is “nondiscretionary” if the employer makes a promise to pay it based on the requirements being met. This includes bonuses designed to induce the employees to work more steadily, more rapidly or more efficiently, to remain with the employer, to meet attendance goals, individual or group production bonuses and bonuses for quality and accuracy of work. 29 C.F.R. 778.211(c). 

In any pay period in which a bonus has been earned the employer must recalculate the rate of pay upon which overtime for that pay period is calculated. The employer must add together all compensation earned for the workweek and then divide the compensation by the number of hours worked.


These Bonuses and Commissions Must be Timely Paid

Generally speaking, commissions and bonuses are due and payable after the employee did what was required and the amounts could reasonably be computed. Commissions are considered earned only after the happening of that event designated in the agreement with the employee so long as the event is reasonably tied to the calculation. DLSE Opinion Letter, 2002.12.09-2. 

If for example a commission is earned when the sale is made then that is the date from which all calculations are made.

Labor Code section 204 designates the timeframe in which an employer must pay its employees. Wages earned by any person in any employment are due and payable twice during each calendar month, on days designated in advance by the employer as the regular paydays.

Section 204(b)(1) allows an employer additional time to pay commissions in the next pay period but only if it also itemizes the subsequent wage statement by including detailed information regarding the wages that it could not pay on time. Each wage component must be separately listed and specifically list the dates for which it is applicable.

The amount that an employee is short changed may not sound like a lot of money at first, when just looking at just a couple of pay periods. But the amount increases well into the tens of thousands of dollars when a claim includes up to four years of back wages plus interest and plus penalties.

Now you know.

• Email This
• Print
• Comments
• Trackbacks

On July 6, 2010, the Second U.S. Circuit Court of Appeals held that sales representatives for Novartis Pharmaceuticals Corporation  are entitled to overtime pay under the Fair Labor Standards Act (FLSA).  Many California employees of Novartis claimed that they were wrongfully denied overtime pay between March 23, 2000 and April 7, 2007. The representatives, who worked nine-hour days, made routine calls and visits to physicians inquiring as to whether they would prescribe the company’s products to patients. Under the FLSA, employees must be paid overtime for more than 40 hours worked per week, but there are exemptions for “outside” salespersons  and “administrative” personnel.

The Court ruled that neither exemption applies to pharmaceutical reps because

(1) representatives only promote a product and do not make “sales”
(2) their activities are so tightly controlled by the company that they are not allowed to exercise independent judgment.

According to Secretary of Labor Hilda L. Solis,  an employee who can merely promote a drug and provide samples, has not in fact made a “sale.” Judge Kearse  agreed, stating that an employee who cannot “even obtain from the physician a binding agreement to prescribe it” has not made a sale.  
Novartis contended that its representatives are exempt from overtime under the “administrative” exemption, because they are free to determine when they will visit a particular doctor and how best to earn their support, whether it be dinner, a sporting event, or some other activity. The Court rejected this argument because it failed to establish a freedom of discretion. It particularly noted that Novartis representatives have no control over the company’s marketing strategy. Furthermore, the company determines the physicians to be visited, the drugs to be recommended, and the promotional events to be held. 

The ruling in this case is important because it is the first federal appellate decision addressing the outside sales and administrative exemptions as it applies to the pharmaceutical industry.  
It also underlines the main purpose of California overtime law, which is to evenly divide work among employees. 
If you are a pharmaceutical representative and have questions regarding your entitlement to California overtime pay, take action and call a knowledgeable California labor law attorney.

• Email This
• Print
• Comments
• Trackbacks

A former sales representative claims he is owed $30,000 in commissions. His California labor law attorney has filed suit in San Francisco alleging this computer manufacturing giant denied three former salespeople thousands of dollars in commissions. The plaintiffs are seeking to represent all salespeople employed by the company who have not received their commission payment or bonuses. According to Bloomberg this could be at least 50,000 current and former employees. The company claims this loss may have been caused due to a malfunction in their order-management system and that around 2,000 out of 23,000 personnel from its global sales team were affected by the glitch

Oftentimes, sales people rely heavily on their commission and are generally classified as exempt employees or not entitled to overtime pay. However, it’s important to understand that in order to be classified as exempt, among other things; you must be actively selling at least 50% of the time. Whether you are an Inside Salesperson or Outside Salesperson, California laws strictly regulate salesperson commissions.

• Email This
• Print
• Comments
• Trackbacks