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We have full time employees who are paid 100% commission. How do I calculate the rate of pay they are paid when they take paid time off?

A common issue employers struggle with is how to handle paid time off for employees whose salary is based on commission only. Employers that choose to extend this benefit will need to determine the best way to calculate the commissioned employee's rate of pay. Although an employer can use various combinations of draws plus commissions to determine the calculation method for paid leave, three options are most commonly used when determining how much a commission-only employee will be paid for vacation time:

  1. Use the minimum wage as the rate of pay for vacation/paid leave.
  2. Limit the total pay for vacation/paid leave to the amount of the salesperson's usual draw.
  3. Use an average of the total wages earned over the previous quarter or other representative period.

In the third option, for example, Asha has earned commission for January, February and March and wants to take one week of paid vacation in April. One option would be to use March's earnings, as it is the closest month to the leave, and pay Asha one week of pay that is equivalent to one week of Asha's earnings in March. Another option is to average Asha's earnings over the previous quarter leading up to the leave. This would mean adding the wages earned for January, February and March and dividing the total wages earned by the total number of weeks in those months.

It is important for employers to select one method of calculation and apply that method consistently to all employees who earn commission and ensure that the company's policy clearly spells out how vacation is paid out to commission-only employees. 

Finally, employers should always check their state and local laws to determine if there are requirement to provide paid leave and specific requirements pertaining to employees paid on commission. Federal contractors required to provide paid sick leave under Executive Order 13706 should refer to their contract to determine obligations should there be employees working on the contract that are paid on a commission-only basis.


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