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Car salesmen are not entitled to an hourly wage if they are exempt employees. Most of them are paid on a commission basis or at a “piece rate,” though some of these workers also make an hourly wage in addition to their commissioned earnings.
Whether they get paid through commissions or on an hourly basis can alter their workplace rights. In this article, we will discuss the commission-based pay laws as applied to car salespeople.
What payment plans are available for a car salesman?
Car salespeople can be paid with any of the following pay plans:
- hourly wage,
- salary,
- commission-only,
- piece-rate, or
- a mixture of hourly or salaried pay and commission pay.
They can also make “spiffs,” or cash prizes from automotive companies or sales managers, for selling specific vehicles that are hard to move.
Many car salespeople are paid at least in part on a commission structure.
A commission is a wage that compensates a worker for their role in completing the sale of a product or a service, like a car.1 The amount of the commission depends on the value of the sale.2 Many car sales professionals are paid entirely on a commission basis. The terms of their compensation are outlined in their commission agreement.
For car dealers, these terms typically include:
- how the commission will be calculated from the gross profit of the sale,
- whether the commission is earned from the back end of the sale, like financing or an extended warranty,
- commission differences between selling a new car and a used car,
- when the commission will be paid,
- the conditions that have to be met before the commission from a sale becomes “earned,”
- the minimum commission that can be earned for a sale,
- whether there is a trade-in as a part of the deal that changes the pricing, and
- deductions for selling a vehicle below its sticker price.
Some car salespeople are paid a specific amount of money for each of their auto sales. If that amount does not change based on the value of the car, it is “piece-rate” compensation, not commission.3
For example: Juan works at Car Dealership A in Los Angeles. He sells a $70,000 Porsche, a $40,000 Nissan, and a $15,000 Honda. He is paid $500 for each sale. He is being compensated on a piece-rate basis.
Janet works next door at Car Dealership B. She also sells a $70,000 BMW, a $40,000 Chrysler, and a $15,000 Toyota. She receives $1,000 for her role in selling the BMW and $600 for selling the Chrysler, but only $200 for selling the Toyota. She is receiving commission payments.
Some car salespeople, however, are paid hourly or on a salary. They are paid the same amount, regardless of how many cars they sell.
Finally, there are plenty of car salespeople who make a base hourly or salaried rate, plus commissioned or piece-rate compensation for their sales.
Non-exempt car salesmen are entitled to minimum wage, even if they earn a commission.
Do car dealerships have to pay their salespeople minimum hourly wage?
Even if they earn commission pay, car salesmen may be entitled to an hourly rate of at least the minimum wage if they are non-exempt employees.
In California, non-exempt employees are not exempted from labor laws and the Fair Labor Standards Act (FLSA). Therefore, they are entitled to:
Whether a car salesman is an exempt or a non-exempt employee depends on whether they are an inside or an outside salesperson.
Only a few car sales professionals are exempt as an outside salesperson. To be exempt in this way, the employee has to:
- regularly spend more than half of his or her working time away from the car dealership, and
- sell or obtain orders for products or services.4
Most car salespeople who are exempt are inside salespeople. To be exempt in this way, employees have to:
- earn at least 1.5 times the minimum wage, and
- earn more than half of their compensation through commissions.5
If a car salesperson does not meet these requirements, then they are non-exempt employees. If they are non-exempt, then they are entitled to an hourly wage of at least the applicable minimum wage standard.
How does this impact rest or meal breaks or overtime?
If a salesperson at a car business is a non-exempt worker, they are not just entitled to an hourly pay of at least the minimum wage: They are also entitled to overtime and paid meal and rest breaks.
Legal References:
About the Author
Neil Shouse
A former Los Angeles prosecutor, attorney Neil Shouse graduated with honors from UC Berkeley and Harvard Law School (and completed additional graduate studies at MIT). He has been featured on CNN, Good Morning America, Dr Phil, The Today Show and Court TV. Mr Shouse has been recognized by the National Trial Lawyers as one of the Top 100 Criminal and Top 100 Civil Attorneys.