By Jennifer L. Lippi, J.D.

 A recent California Supreme Court decision places California employers who pay commissions in another wage and hour dilemma. In the often used "inside sales" exemption classification  the CA Supreme Court ruled that all commissioned inside salespersons are entitled to overtime in California unless they meet specific exemption requirements.  Under California law a commissioned inside salesperson is exempt from overtime if:

1. The employee's earnings exceed 1.5 times the state minimum wage; and

2. At least 50 percent of the employee's total compensation is from commissions.

In Peabody v. Time Warner Cable, Inc., the California Supreme Court recently considered whether an employer may allocate an employee's commission wages from one pay period to other pay periods in order to meet the commissioned inside sales exemption.  The Court unanimously held that "an employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings." In other words, a commission payment may be applied only to the period in which it is paid for purposes of determining whether an employee is exempt, and an employer cannot divide the commission payment across multiple pay periods in order to cure a shortfall.