Paystubs for Commissioned Employees in California

A recent court decision holds that California employers must track hours worked by commissioned employees on their paystubs. The federal District Court for the Eastern District of California ruled that California Labor Code 226, which governs wage statements for employees, requires employers to report total hours worked for commissioned outside salespersons on wage statements. The court referenced the exception to Labor Code 226, which makes reporting total hours worked to “the employee, except for any employee whose compensation is solely based on a salary and who is exempt from payment of overtime.”

A strict reading of Labor Code 226 suggests that an outside salesperson who receives both commission and salary does not meet the exception, because of the word “solely.” The court failed to elaborate on that assertion. Thus, the conservative approach for employers is to track the hours of an outside salesperson if they receive commission only and if they receive salary, plus commission.

As a reminder to employers, other class-action lawsuits have been brought against employers under Labor Code 226 for listing a “DBA” on paystubs rather than an entity’s legal name. Employers in California should list the legal entity name and address on paystubs/wage statements. A recent bill was signed into law (AB 1506), which provides employers 33 days to correct errors in wage statements to avoid litigation.

Labor Code 226 requires employers to list the following on their wage statements:

1. Gross wages earned;

2. Total hours worked by the employee (except for salaried employees who are exempt from overtime pay);

3. The number of piece-rate units earned (if the employee is paid on a piece-rate basis);

4. All deductions;

5. Net wages earned;

6. The dates of the period for which the employee is paid;

7. The name of the employee and only the last four digits of the employee’s Social Security number;

8. The name and address of the employer (or legal entity that is the employer); and

9. All applicable hourly rates in effect during the pay period and numbers of hours worked at each hourly rate by the employee.

MSEC employs California-licensed attorneys and HR professionals who can assist with your concerns.