Seyfarth Synopsis: The Office of the California Labor Commissioner (aka the DLSE) recently issued an opinion letter explaining how employers should calculate sick pay for commissioned employees. Somewhat surprisingly, the letter counsels that the rate of sick time pay for these employees must be calculated using one of the schemes applicable to non-exempt employees—even if the commissioned employees qualify as exempt outside salespersons or as “commissioned employees.”

On October 11, 2016, the DLSE issued an opinion letter regarding California’s Healthy Workplace Healthy Families Act of 2014. As is usual with opinion letters, the DLSE was responding to a request for guidance from a cautious employer seeking to cure uncertainty about how to interpret a statute. Opinion letters are binding only on the particular employer who asked the question, but the rest of the California employment world generally pays attention; the letters the DLSE choses to publish provide general insight into the DLSE’s approach.

The employer here wanted to know the correct way to calculate the rate of pay for sick leave taken by commissioned employees. The statute provides three alternative methods:

(1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.

(2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

(3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time. Labor Code section 246(K)(1)-(3).

Based on this plain language, it would seem reasonable for California employers to use the scheme of section 246(k)(3), as commissioned employees are often exempt from overtime under applicable standards. But the DLSE has a different view. The opinion letter explains that the term “exempt,” as used in in this section, refers only to those employees who satisfy both the salary and duties tests of the professional, executive, or administrative exemptions. By this reading, the term “exempt” does not include those employees who are exempt from overtime under the outside sales exemption or commissioned employee exemption.

To qualify as an outside salesperson, an employee must “customarily and regularly work more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” “Commissioned employees” are persons working in the “Retail Industry” who earn more than one-half their compensation from commissions and whose total compensation exceeds 1.5 times the minimum wage for each hour worked during the pay period. For these employees, the DLSE says, employers should calculate sick time using one of the two sections applicable to nonexempt employees, even if they are actually exempt.

Workplace solution: While the guidance may seem counter to the statutory language, the good news is that we now have some guidance. To act consistently with the DLSE’s latest opinion, California employers should look to Labor Code sections 246(k)(1) or (2)—which articulate the two methods used to calculate sick pay for non-exempt employees—when determining how to appropriately calculate sick time for employees who receive commissions, even if they qualify as exempt from overtime as either an outside salesperson or a “commissioned employee.”