May an employer attribute commission wages to a different pay period than when paid to satisfy state's compensation requirements?
The fact that commissions earned by employees can both be delayed in payment and distributed in uneven increments creates some challenges. Under Federal law, an employer may attribute commissions to when they are earned (rather than when paid), or to other pay periods, so long as an employee is paid minimum wage in each pay period. But, unlike California law, federal law does not require employees to be paid semimonthly, and the rules also differ as they impact whether an employee is exempt.
When confronted with the above question under California state law, the federal Ninth Circuit punted: it asked the California Supreme Court to consider this question, which it did in Peabody v. Time Warner Cable, Inc. (filed 7/14/14) S204804. The California high court answered that a California employer may not attribute commissions to a different pay period than when actually paid to the employee.
Peabody received biweekly paychecks, which included hourly wages in every pay period and commission wages approximately every other pay period. In her class action, Peabody's allegations included that she never received overtime though working 45+ hours per week; when she occasionally worked more than 48 hours per week, she earned less than minimum wage when only paid hourly wages. She also sought statutory penalties for late payment of wages and for itemized wage statement violations.
The action was removed by employer's motion to the United States District Court, where employer's summary judgment motion was granted because the court found employer Time Warner could attribute commission wages paid in one biweekly pay period to other pay periods for the purposes of satisfying California's compensation requirements. Because it found California law was complied with, and this allocation met minimum wage requirements, the district court rejected the overtime and minimum wage and other claims. When Peabody appealed, the Ninth Circuit asked for the state high court's guidance.