Seattle Minimum Wage Guide: Commissions & Bonuses

Seattle Minimum Wage Guide: Commissions & Bonuses

Tips and health care aren’t the only forms of compensation you can factor into an employee’s wages.  Commissions and bonuses can also be considered.  Of course, you need to make sure you’re classifying them properly, so let’s cover how these forms of compensation are defined:

Commission – A “commission” is defined in the ordinance as “a sum of money paid to an employee upon completion of a task, usually selling a certain amount of goods or services.”

Bonus – The Ordinance defines a “bonus ” as ““non-discretionary payments in addition to hourly, salary, commission, or piece-rate payments paid under an agreement between the employer and employee.”  (Note that federal and state law provide guidance on when bonuses are discretionary versus non-discretionary. Please consult State L&I or a knowledgeable wage / hour attorney if you have any questions.)

Rules for Commissions

How it works: The commissions paid to the employee may meet 100% of the employee’s minimum wage in a workweek (including the state minimum wage), if the commissions earned divided by hours worked in that workweek total at least the full minimum wage.  For more details, see pg. 12 of the Minimum Wage Guide (MWG).

Schedule 2 employers take note: The section of the Ordinance expressly dealing with Schedule 2 employers (Section 14.19.040) does not have similar language. This is likely simply an oversight and that Schedule 2 employers may apply commissions towards their minimum wage obligations in the same manner intended for Schedule 1 employers (e.g., the definition of minimum wage for both Schedules is the same), but please obtain clarification on this point from SOCR if this applies to/impacts your business model.

Limitation on applying service charges as commissions: The Rules acknowledge that service charges paid to employees may meet the definition of “commission” under the Ordinance, but place limitations on the use of service charges in this manner. Please see the discussion of service charges under Section V of the MWG (pg. 29) for analysis of the use of service charges.

Rules for Bonuses

How it works: Given that “bonus” is “in addition to hourly, salary, commission or piecerate payments”, it is appropriate to set an employee’s guaranteed hourly rate at a certain level (e.g., at or above the state minimum wage) and have non-discretionary bonuses make up the difference between the hourly rate and the Seattle minimum wage.  This is how we’ve interpreted the ordinance, so if you’d like to read the exact wording it can be found on pg. 13 of the MWG.

While the Ordinance does not explicitly require that the agreement between the employer and employee concerning the payment of bonuses be in writing, it is recommended to have the agreement be in writing (to, among other things, ensure compliance with the notice provisions under the Wage Theft Act).

Schedule 2 employers: Please read the disclaimer in the middle of the previous section on commissions.  The same applies for bonuses.

Potential limitation on use of service charges as bonuses: The Rules do not explicitly recognize that non-discretionary bonuses paid to employees may meet the Ordinance’s definition of a bonus. Please see the discussion of service charges under Section V of the MWG (pg. 29) for analysis of the use of service charges.

More on Service Charges

While service charges can meet the definition of a “commission” or a “bonus,” which is what allows for them to be counted towards the requirement, the definitions are complicated. We encourage you to discuss the situation with SOCR or a wage lawyer if you are looking to incorporate use of service charges into your business requirements to meet minimum wage standards.

For more information on service charges, and examples of how some restaurant owners are incorporating them into their businesses under the new law, check out Edition Three.

We realize implementation of the new Seattle Minimum Wage ordinance can be intimidating and confusing. If you have any questions about what you should or should not do, we’re here to be your resource. You can call us anytime (360) 956-7279.

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