Commission-Only Inside Salespersons are Entitled to Overtime and Sunday Pay Under Massachusetts Law

May 13, 2019

Interpreting the “plain and ordinary” language of the state’s overtime statute and related regulations, the Massachusetts Supreme Judicial Court has held that inside sales employees paid on a 100% commission basis are additionally entitled to pay for overtime hours worked and premium pay for work on Sundays. Sleepy’s was a retail mattress chain; the plaintiffs are former Sleepy’s salespersons. The plaintiffs were paid a daily draw, regardless of how many hours per week they worked, as well as commissions in excess of their draws. Just as under federal law, Massachusetts law requires employers pay employees who work in excess of 40 hours per week at a rate of at least 1.5 times the employee’s “regular rate,” while a related regulation defines regular rate as “the employee’s total weekly earnings by the total hours worked during the week.” The overtime statute further provides that retail employees who work on a Sunday or certain holidays similarly are entitled to pay for all such hours at 1.5 times their regular rate. Under the Massachusetts statute and regulation, however, the regular rate explicitly excludes, among other things, commissions, draws on commissions and Sunday premium pay. The Court noted that state law unequivocally prohibits employers from “retroactively reallocat[ing] and credit[ing] payments made to fulfill one set of wage obligations against separate and independent obligations.” The Court concluded, “that the overtime statute requires separate and additional overtime compensation to be provided to a one hundred percent commission employee regardless of whether that employee receives a recoverable draw or commissions that equal or exceed one and one-half times the minimum wage for any hours worked beyond forty.” The Court held that, because the regular rate excludes commissions, draws and Sunday premium pay, the overtime and/or Sunday rate must be at least 1.5 times the state minimum wage (currently $12.00/hour). SESCO has a long history of ensuring that employers are compliant with federal and state wage and hour requirements. If employers have any questions or concerns about their pay practices, we recommend they contact us to ensure compliance.

Although the case involved Sleepy's (a mattress store), the manner in which Sleepy’s pays it sales staff is similar to how many auto dealerships (and other retailers) pay their sales employees. Like auto dealerships, Sleepy’s pays it commissioned employees a lump sum based entirely upon a draw and commission, Under such a pay plan, a dealership sales employee typically earns more than what he or she would have earned had the employee been paid straight Minimum Wage and Overtime. The Court, however, held that this compensation structure does not comply with the Massachusetts Wage Act. The Court specifically held that the Overtime and Sunday premium wage statutes require separate and additional overtime (or Sunday premium) compensation to be provided to a 100% commission employee, regardless of whether that employee receives a recoverable draw or commissions that equals or exceeds what would be due under the Overtime statute. For example, if a dealership employee works 45 hours, he or she must be paid at least the state minimum wage of $12.00 per hour for the first 40 hours worked, plus an additional $18.00 per hour for the 5 hours of Overtime worked, regardless of what he or she is paid for commission. The Court held that Massachusetts statute “entitles the employees to separate and additional overtime payments beyond their draws and commission.” The Sullivan Court also held that these separate categories of compensation must be broken down and included on wage statements.