COMMISSION PAY IN CALIFORNIA
By Ward Heinrichs

In the world of sales, a commission is more than just a bonus; it is a legal form of compensation that rewards performance and drives growth. For many, it represents the potential for uncapped earnings; for employers, it is a powerful tool for aligning employee goals with company revenue.

In California, sales commissions are legally considered "wages" and are generally defined as: “compensation paid to any person for services rendered in the sale of [an] employer’s property or services and based proportionately upon the amount or value thereof.” (Labor Code §204.1.) For 2026, employers who pay commissions must navigate a strict regulatory landscape that prioritizes transparency and ensures workers never fall below state-mandated pay floors.

California law requires all commission arrangements to be documented in a written contract signed by both parties. (Labor Code §2751.) The agreement must clearly explain how commissions are computed and paid. Courts often interpret vague terms in favor of the employee. Further, the agreement must clearly define when commissions are "earned." For instance, the agreement may state that commissions are earned when a customer’s payment clears or when a product is shipped. Finally, employers must give a signed copy of the agreement to employees and get a signed receipt from employees proving that they received a copy.

If employees earn zero sales in a pay period, employers must pay them at least the applicable minimum wage for every hour worked. As of January 1, 2026, the California statewide minimum wage became $16.90 per hour for most employers. Some cities require an even higher minimum wage. Employers must also pay the overtime premium rate for all overtime hours worked. If earned commissions fall below the total minimum wage and/or the total overtime premium pay in any given week, the employer must pay the difference.

Employers may avoid paying overtime to workers who qualify as “inside sales” employees. To qualify for the inside sales exemption, the employees must meet the following requirements:

That means, to avoid paying overtime to commission-based employees, California employers must pay at least $25.35 per hour ($16.90 x 1.5), unless the local minimum wage is higher, and commission pay must be more than half of an employee’s total wages.

“Outside sales” is another form of exemption because those who qualify are not covered by wage laws. That exemption is beyond the scope of this article.

Commission disputes commonly arise when an employee quits or is terminated. For the most part, commissions are earned as defined in the commission agreement, but problems can arise in two different situations: one, when the commission agreement is vague about when commissions are earned; two, when the terms are overly harsh and the employee did not have the bargaining power to avoid the harshness. (Ellis v. McKinnon Broadcasting Co. (1993) 18 Cal.App 4th 1796.) If an employee proves one or the other, then the employee will get the unpaid commission and will probably receive waiting time penalties, which are equal to one day of the employee’s average pay for every day the payment is late, up to 30 days.

Based in San Diego, California the Employment Law Office of Ward Heinrichs represents both employers and employees in almost all areas of labor law. He and his firm litigate cases that have been filed in many different parts of California. Keep up with him at https://bestemploymentattorneysandiego.com/

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