California’s wage orders exempt from overtime requirements “any employee whose earnings exceed one and one-half (1 1/2) times the minimum wage if more than half the employee’s compensation represents commissions.” The California Supreme Court in Peabody v. Time Warner Cable, Inc. clarified that employers may not allocate commissions paid in one pay period to other pay periods (in which the commission were earned) to satisfy the exemption’s compensation requirements.

Time Warner paid the plaintiff on a biweekly basis, but because it paid commissions at the end of each month, many of the plaintiff’s checks represented pay at less than one and one-half times the minimum wage ($12/hour at the time). Time Warner argued that for purposes of the commissioned sales exemption, commission wages should be attributed not to the pay periods in which they were paid, but instead to the pay periods in which they were earned.

The California Supreme Court disagreed, and held that employers must pay the required minimum wages in each pay period—regardless of when the commissions were actually earned—to satisfy the commissioned employee exemption compensation requirements.