Commission pay
Commission pay is compensation calculated as a percentage or fixed amount tied to a sales result, such as a completed deal, rather than hours worked.
You often pay commission alongside a base salary or hourly rate. Commission is earned between pay cycles, so each qualifying sale usually needs a variable-earnings entry. For federal income tax withholding, the IRS treats commissions as supplemental wagesSupplemental wages. Supplemental wages are wage payments to an employee that are not regular wages, such as bonuses, commissions, severance pay, and back pay.Click to open the term. A draw against commission advances a set amount each period, repaid from future commission when recoverable; a nonrecoverable draw works more like a guaranteed minimum. A SPIFF (sales incentive) you pay an employee is a supplemental wage, like a bonus.
How does commission pay affect overtime?
A non-exempt employee’s commission must be folded into the regular rate used for overtime under the Fair Labor Standards ActFLSA. The Fair Labor Standards Act (FLSA) is the federal law setting minimum-wage, overtime, recordkeeping, and youth employment standards for covered employment.Click to open the term. Commission counts as pay for hours worked, like an hourly wage or a bonus. A workweekWorkweek (FLSA). A workweek under the Fair Labor Standards Act is a fixed, regularly recurring period of 168 consecutive hours used to compute overtime.Click to open the term that mixes a base rate with a commission payout produces one blended regular rate, not two separate calculations. Confirm the regular-rate treatment for your pay structure with the U.S. Department of Labor or a qualified wage and hour professional.
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Tie the commission to the workweek it was earned in, even when it is paid later.
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Fold it into that week’s regular rate alongside the base pay.
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Carry any retroactive adjustment through to every affected pay period, not only the current one.
- 29 CFR §778.117, Commission payments: general
- Publication 15 (2026), (Circular E), Employer’s Tax Guide
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.