California has some of the most detailed and employee-friendly employment laws in the nation, and commission-based pay is no exception. For both employers and workers, understanding the nuances of California commission laws for 2025 is crucial, particularly as new wage and hour laws, predictive scheduling regulations, and payroll updates take effect. With the state’s continued focus on fair labor practices and the anticipated minimum wage increases, both sides must stay informed about their rights and obligations regarding commission-based compensation to avoid disputes, claims, and penalties.
Below, we will explain how commission pay laws work in California, explore the significant legal updates for 2025, and provide actionable insights to ensure compliance with new California employment laws. Whether you are an employer creating commission agreements or a worker seeking clarity on your compensation, this comprehensive guide will provide you with the tools you need to navigate California labor law changes for 2025 effectively.
What Is Commission Pay Under California Law?
Commission pay is a type of wage that compensates employees based on their performance in sales-related activities. Under California Labor Code Section 204.1, commission wages are defined as compensation paid to employees based on proportionate amounts of sales or the value of goods or services sold. This means an employee’s earnings must have a direct connection to the sale of a product or service.
Key distinctions between working on commission and other forms of compensation include:
Commission vs. Bonuses:
Commissions are non-discretionary payments earned based on specific sales-related performance metrics, such as achieving a certain percentage of sales or completing a predetermined number of transactions.
Bonuses, on the other hand, are often discretionary payments awarded by the employer based on subjective criteria (e.g., overall company performance, employee recognition). Even if a bonus is calculated as a percentage of sales, it does not qualify as a commission unless it is guaranteed as part of the employment agreement.
Commission vs. Piece-Rate Pay:
Piece-rate pay compensates employees based on tasks completed or units produced rather than sales. For example, an employee paid per unit of assembled furniture would be earning piece-rate pay, not commissions. Commissions specifically relate to compensation earned through the act of selling a product or service or influencing a sales transaction.
California Commission Agreement Requirements
California law requires that all commission-based compensation agreements meet the following criteria:
- Written Agreements Are Required: Employers must provide a written commission agreement that clearly defines the terms under which commissions are earned, calculated, and paid. This is a legal requirement under Labor Code Section 2751.
- Methods for Calculating Commissions: The agreement must include a detailed explanation of how commissions will be measured. This could involve:
- A percentage of the sales price or profit from a transaction.
- A flat amount per unit sold.
- Mixed methods, such as a combination of sales value thresholds and percentage-based rewards.
- Employer Responsibility for Signed Copies: Employers are obligated to provide employees with a copy of the signed commission agreement. Employees must also sign an acknowledgment of receipt to ensure there is no ambiguity regarding the terms of the agreement.
- Clarity on Forfeiture Provisions: If the agreement includes conditions under which commissions may be forfeited—such as requiring an employee to remain employed at the time of
California Wage and Hour Laws in 2025
California’s wage and hour laws are constantly evolving to ensure fair compensation and protect employee rights. In 2025, significant changes are expected, including increases to the minimum wage, considerations for overtime eligibility, and stricter scheduling laws. These updates will directly impact commission-based employees, making it essential for both employers and workers to stay informed.
Minimum Wage Increases for 2025
Starting January 1, 2025, California’s statewide minimum wage is set to increase as part of its ongoing adjustments to reflect inflation and the rising cost of living. The rate for hourly workers will rise to $16.50/hour for all employers, regardless of size. Similarly, the minimum salary for exempt workers will increase to $68,640/year or $1,320/week.
California’s minimum wage laws apply to all non-exempt employees, including those earning commissions. To remain compliant, commissioned employees must earn at least the minimum wage for every hour worked, regardless of their sales performance. If commissions fail to meet the required hourly rate, the employer must make up the difference.
Employers relying on the commissioned sales exemption must also ensure that employees earn at least 1.5 times the minimum wage for each pay period. Failure to meet this threshold will result in the loss of exemption status, entitling the employee to overtime pay.
For businesses that pay employees primarily on a commission basis, these wage increases mean revisiting commission structures and pay agreements to avoid violations or wage claims.
Overtime Considerations for Commissioned Employees
California has some of the strictest overtime laws in the country, and commissioned employees are no exception. Proper classification of employees as exempt or non-exempt is critical to determining overtime eligibility.
Under state law, non-exempt employees are entitled to overtime pay under the following conditions:
- More than 8 hours worked in a day (time-and-a-half for hours over 8).
- More than 40 hours worked in a week (time-and-a-half).
- More than 6 consecutive workdays in a workweek.
- Double-time pay for hours exceeding 12 in a single day or more than 8 hours on the seventh consecutive day in a workweek.
Commissioned employees may qualify for an exemption from overtime under specific conditions:
- The employee must earn at least 1.5 times the state minimum wage during each pay period.
- More than 50% of their total earnings must come from commissions.
- The exemption applies primarily to employees in retail, professional, or technical industries.
If a commissioned employee fails to meet these criteria in any given pay period, they lose their exempt status and are entitled to overtime compensation for any hours worked over 8 in a day or 40 in a week. Employers must track hours carefully and assess pay structures regularly to maintain compliance.
Employers who misclassify commissioned employees as exempt and fail to pay overtime could face penalties, back pay claims, and legal action. Ensuring proper classification helps avoid costly disputes and protects employee rights.
Unique Considerations: Advances, Draws, and Deductions for Commissioned Employees
Employers often provide advances or draws to commissioned employees, which are treated as prepayments against future commissions.
Advances are typically recoverable loans if commissions are not earned. Employers cannot deduct advances if doing so would reduce an employee’s earnings below the minimum wage.
Employers may only make deductions for business expenses if the costs are directly tied to the sale (e.g., shipping fees or product discounts). Furthermore, employees must agree to the deductions in writing. General business expenses, such as rent, overhead costs, or credit card fees, cannot be passed on to employees through deductions.
California Scheduling Laws in 2025
Predictive scheduling laws are another growing area of focus in California labor regulations. These laws aim to provide employees with more stability in their work schedules while holding employers accountable for last-minute changes. For commissioned sales employees, particularly those in industries with variable hours (e.g., retail, hospitality), predictive scheduling has a direct impact.
Predictive scheduling laws require employers to provide employees with advance notice of work schedules (typically 7-14 days in advance), as well as to compensate employees for last-minute changes or cancellations.
Commissioned sales workers often rely on peak business hours to maximize earnings. However, unpredictable schedules can interfere with their ability to plan and maintain consistent income.
Employers must carefully balance commission-based work models with predictive scheduling requirements to avoid penalties while ensuring employees have adequate notice of their work hours.
Employers who fail to provide proper schedule notices may be required to pay “predictability pay,” which compensates employees for the inconvenience of sudden changes. For commissioned employees, any additional predictability pay must still meet minimum wage and overtime requirements.
Outside Salesperson Exemption
The outside salesperson exemption is another category under California employment law that excludes employees from minimum wage, overtime, and meal/rest break requirements. Unlike the commissioned sales exemption, this classification focuses on the location of work and the employee’s primary job duties.
An outside salesperson is defined as an employee who:
- Spends more than 50% of their work hours away from the employer’s place of business or designated worksite. This includes time spent visiting clients, traveling for sales calls, or meeting prospects outside the office.
- Engages primarily in selling products, services, or the use of facilities to customers. This includes influencing transactions, promoting services, and closing sales in person.
As remote and hybrid work environments continue to evolve, clarifications around outside salesperson eligibility are becoming increasingly important. Time spent working remotely or conducting sales calls from a home office does not qualify as outside sales unless the work involves substantial time outside of the home, directly interacting with customers.
California regulators and courts are expected to emphasize stricter interpretations of “50% outside work” in 2025 to prevent misuse of this exemption. Employers must carefully evaluate how employees spend their time and maintain accurate records to substantiate claims of outside salesperson status.
Examples of outside sales roles include:
- A pharmaceutical representative who spends most of their day visiting healthcare providers and pitching products.
- A real estate agent who meets clients at properties and conducts offsite showings.
- A field sales representative for a construction supply company who spends significant time traveling to client locations to finalize transactions.
Employers who incorrectly classify inside sales employees as outside salespersons may face legal action for wage violations. Ensuring that an employee’s duties and work locations meet the strict criteria for this exemption is crucial for compliance.
Importance of Tracking Hours for Non-Exempt Commissioned Employees
For commissioned employees who do not qualify for an exemption, tracking hours worked is essential to ensure compliance with California’s wage and hour laws. Employers are required to:
- Accurately Record Work Hours: Maintain detailed records of all hours worked by non-exempt commissioned employees, including time spent on tasks unrelated to sales, such as administrative work or meetings. Commission-based employees must be paid at least the minimum wage for all hours worked, even if commissions fall short of this threshold.
- Calculate and Pay Overtime: Non-exempt commissioned employees are entitled to overtime pay according to the regulations and rates mentioned above. Employers must separate hours spent earning commissions from hours spent performing other duties and compensate appropriately for all time worked.
- Avoid Misclassification Risks: Employers must regularly evaluate their employees’ roles and earnings to determine whether they qualify for exemptions. For non-exempt employees, failing to properly track and pay for all hours worked, including overtime, can result in penalties, back wages, and costly lawsuits.
Implementing reliable time-tracking systems and conducting periodic reviews of employee classifications will help ensure compliance with California labor laws. For commissioned employees, clear documentation of hours worked and earnings provides essential protection against wage claims and disputes.
Prepare for the New Year and New Laws With the Law Offices of Denise Eaton May, P.C.
California’s commission laws are set to become even more robust in 2025, with changes to minimum wage, exemption requirements, and payroll laws. Employers must act now to review commission agreements and ensure compliance, while employees should remain vigilant about their rights. The Law Offices of Denise Eaton May, P.C. stands ready to assist employers and workers in navigating these complex changes to ensure fair treatment and legal compliance.
