Commissions can be a ‘wage,’ but they must meet salary basis test

California law requires employers to pay overtime rates to em­ployees who work above a set number of hours unless an ex­emption applies. The exemptions generally have two require­ments: that employees (1) perform certain specified duties that are classified as “exempt” (the so-called “duties test”) and (2) be paid a salary above a specified amount (the so-called “sal­ary basis test”). This case confronted the issues of whether a commissions-only compensation plan met California’s salary basis test. Surprisingly, no prior case had dealt with this pre­cise issue.

Advisers claim they were misclassified as exempt

Joseph Semprini is a former employee of Wedbush Se­curities, Inc., and Bradley Swain is a current employee of Wedbush. They filed a class action against Wedbush on behalf of all the company’s employees in California who were paid once a month and earned commissions in the preceding four-year period. Among their claims were various wage and hour claims based on Wed­bush’s alleged misclassification of its financial advisers as exempt. The company raised the administrative ex­emption as one of its affirmative defenses.

An employee is exempt under the administrative ex­emption if he (1) is primarily engaged in certain, speci­fied exempt duties and (2) earns a monthly salary equiv­alent to no less than two times the state minimum wage for full-time employment. The sole issue in this case was whether Wedbush’s method of compensating its employees met the second requirement—the so-called “salary basis test.”