How to Accrue Payroll for Commissioned Employees

Commission is a form of payment for an agent who played a role in facilitating a transaction. Some employers choose to pay employees commission to encourage sales productivity. It is an employer's responsibility to keep complete records of employee earnings and hours worked, even if employees are paid solely on commission. Employers are required to follow state and federal guidelines regarding minimum wage and overtime. Under the Fair Labor Standards Act, employees paid on commission must be paid at least minimum wage.

  1. 1.

    Gather all records for the current pay period, including the hours worked and the earnings. Require employees to turn over any hour logs or proof of commission owed several days before payroll is due to check for possible errors.

  2. 2.

    Refer to the contract with your employee to determine if there is a minimum earning amount to receive payout. If the employee's commission does not reach the payout threshold, payment carries over to the next paycheck.

  3. 3.

    Divide the commissioned earnings by the number of hours the employee worked. If the employee is paid commission in addition to a regular hourly wage, add the total hourly earnings to the commission and then divide by the number of hours worked. Employees who do not reach minimum wage must be paid the difference.

  4. 4.

    Calculate overtime earnings when applicable. Employees not exempt from overtime who exceed 40 hours per week, you must pay the employee at a rate of 150 percent of his regular earnings for each additional hour.

  5. 5.

    Subtract all statutory and voluntary deductions from the gross earnings. Refer to the current IRS withholding tax tables and the employees' Form W-4 to calculate the necessary federal income tax. If the employee is in a state that charges a state income tax, use state tax withholding tables to deduct the proper amount.