How to Calculate Payment of Paid Sick Leave – Exempt Non-Exempt Employees, Employees Paid by Commission
General Rule
Labor Code section 246(k) allows, as discussed below, an employer to pay PSL to an employee who is not exempt from overtime under the professional, administrative or executive exemption in one of two ways. The employer may calculate the regular rate of pay for the workweek in which the paid sick leave was taken (under (k)(l)) or the employer may calculate the total non-overtime earnings for the prior 90 days divided by the total hours for the prior 90 days (under (k)(2)) A non-exempt employee is paid based upon their total compensation which includes all forms of compensation (hourly, commissions, piece rate, incentive/performance bonuses).
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Whether an exempt employee who is paid almost entirely by commissions has to be paid a separate amount of PSL or whether amounts that an employee regularly receives in commissions which happen to be paid on a sick day would suffice.
Computing the amount of PSL due to an employee who is paid almost entirely by commissions may be calculated by either method available under Labor Code section 246(k)(l) or (2). Labor Code section 246(k)(3) would not apply to an employee paid almost entirely by commissions because that employee is not as we understand your letter, earning a salary of at least two times the minimum wage in addition to commissions.
At the outset it is important to understand that generally an employee paid almost entirely by commissions is only exempt from overtime if one’s earnings exceed one and one-half times the minimum wage and more than one half of all compensation represents commissions for each pay period pursuant to Labor Code Section 515(b) and Section 3(D) of the Industrial Welfare Commission Orders, or if the employee qualifies as an outside sales person under Labor Code Section 1171 (and Section 1 (C) of the Industrial Welfare Commission Orders.
Under both instances, employees are commonly understood to be “exempt” from different aspects of minimum labor standards (overtime or minimum standards under the IWC Orders, respectively).
These two exemptions are independent exemptions which apply separately from paid sick leave requirements including the calculation for payment for sick leave taken by employees who receive commissions.
In Labor Code section 246(k), the reference to “exempt” and “nonexempt” employee for purposes of selecting the appropriate calculation under Labor Code section 246(k) refers to an employee who satisfies both the salary and duties tests in Labor Code section 515(a), and not to the outside sales exemption pursuant to Labor Code 1171 and Section 1(C) of die IWC Orders, nor to the overtime exemption for commissioned salespersons pursuant to Section 3(D) of the Wage Orders as authorized under Labor Code section 515(b).
To the extent there is ambiguity regarding the meaning of “exempt” in the calculation for paid sick leave in Labor Code section 246(k), intent can be ascertained from the statute’s context and legislative intent, The language of Section 246 evidences an intent that the distinctions for how to compute PSL is based on whether an employee is exempt (paid a minimum salary for all hours worked and meets the duties test) as a professional, executive, or administrative employee and therefore meets the requirements of Labor Code section 515(a)?
When the Healthy Workplaces, Healthy Families Act of 2014 was amended by Assembly Bill 304 in 2015, the Legislature created flexibility by allowing employers to calculate a non-exempt employee’s pay either by looking back 90 days and dividing total wages paid, excluding overtime pay, by total hours in the full pay periods in the prior 90 days of employment, or by using the regular rate of pay in the pay period in which the leave was taken.
An analysis by the Senate Committee on Labor and Industrial Relations at the time AB 304 was being considered indicates that the language in Labor Code 246(k)(3) was meant to apply to an employee exempt as “administrative, executive, or professional”. (See Senate Committee on Labor and Industrial Relations, Analysis, Hearing date July 8,2015.)
Also, the same Legislative Committee Analysis described above also stated a concern regarding commissioned sales persons. The committee analysis stated that paid sick leave could be paid based on either the regular* rate of pay in the pay period the paid sick leave is taken or the average pay for the prior 90 days for commissioned sales persons which is consistent with the view that the options provided in (k)(l) and (k)(2) would apply to a commissioned salesperson. This allows employers to choose either method of calculating payment that would compensate the employee for the sick day but not lead to an inflated rate for the leave if, in fact, a payment was just received for commissions. The Analysis is attached here for your review.
Based on the above, in the first scenario you describe, employees who are paid by commissions must be paid according to Labor Code sections 246(k))(l) or(2).