Hourly, commission or hybrid: five weeks that test whether your technician pay plan is legal

Most technician pay plans are legal in an average week. They break in the unusual ones: the 55-hour week in July, the rainy week in March, the month a bonus lands, the refund after the commission was paid. If you want to know whether your hourly, commission or hybrid plan is safe, don't read it. Run it through five specific weeks and do the math the way the Department of Labor would.

This post walks through those five weeks with worked numbers, then covers the two questions owners ask most: can commissioned techs skip overtime under the retail exemption, and what has to be in writing. It's general information for owners, not legal advice, and state law can be stricter than anything here.

The three pay plans, and where each one breaks

Before the stress test, a quick map. Our salary guides for HVAC technicians, plumbers and electricians cover market rates and a one-week comparison of four structures. Here the question is narrower: where does each one get you in trouble?

The hybrid is where most residential service shops end up, and it's the one with the most ways to go wrong, because every extra piece of pay changes the overtime math.

Week 1: the 55-hour summer week

Federal law requires overtime of at least one and a half times the regular rate, and the regular rate includes all pay for work except a short list of exclusions¹. Commissions are part of it, regardless of how or how often they're calculated and paid². Spiffs and bonuses promised in advance count too; the rules list attendance, production and quality bonuses as ones that must be included, and say plainly that labels don't decide it³.

When commission is paid weekly, the method is simple: add the commission to the week's straight-time pay, divide by all hours worked, and pay an extra half of that rate for each overtime hour⁴.

Here's a hypothetical hybrid tech in a hot week: $22 an hour, 52 hours, 5% commission on $9,000 of completed work, and two $25 membership spiffs.

The common mistake is paying the overtime premium on the $22 base only: 12 × $11 = $132. That's $57.69 short for the week. Across a 12-week summer and a 10-tech crew, it's about $6,900 in unpaid overtime, and under the FLSA an employer that underpays can owe the back wages plus an equal amount in liquidated damages⁵.

Week 2: the week the monthly bonus lands

Monthly bonuses are where overtime goes wrong without anyone noticing. A promised bonus is earned across the weeks of the month, so the rules require it to be spread back over those weeks and the overtime for each week recalculated⁷. If the bonus can't be tied to particular weeks, the regulations allow assuming it was earned evenly each week or each hour; for a monthly period, the weekly share is the bonus times 12, divided by 52⁸.

Say a tech earns an $800 bonus for a month of no callbacks. The weekly share is $800 × 12 ÷ 52 = $184.62. Here's the extra overtime owed for each week of that month:

Thirty-nine dollars is easy to dismiss. It's also easy to automate, and it's the kind of small, repeated shortfall that adds up across a crew and several years. The regulations do allow one shortcut: a bonus calculated as a percentage of all earnings, including overtime pay, already covers the overtime with no recalculation⁹. "10% of total pay for the month" is cleaner than "$800 flat" if you want to avoid this step.

Week 3: the rainy week

The opposite problem. A commission-heavy plan can pay less than minimum wage when the board is empty. Federal law measures this week by week; the workweek is the standard, and a good July doesn't cover a bad March¹⁰.

Take a tech on straight 20% commission of completed revenue who works 40 hours in a slow week and completes $2,000 of work. That's $400, or $10 an hour.

• Federal minimum wage is still $7.25¹¹. The tech is covered for the week.
• California's minimum wage is $16.90 for 2026¹², so the same week needs at least $676. You'd owe a $276 top-up, and in California that's only the start, because state law generally looks at pay for each hour worked rather than letting a good hour make up for a bad one¹³.

This is why most shops that pay commission use a guarantee: the greater of the commission or an hourly floor. Set the floor at or above your highest applicable minimum wage, including city minimums, and remember that the floor itself is pay that goes into the regular rate on overtime weeks.

Week 4: the refund after the commission was paid

A replacement sells, the commission is paid, and two months later the customer cancels and gets a refund. Can you take the commission back?

Federal rules allow a lot here, within limits. Debits for returns can be applied in the current period even if the original sale was earlier¹⁴. But wages must be paid "free and clear": a deduction or repayment can't cut into the minimum wage or overtime owed for the week¹⁵.

California is much stricter. Labor Code section 221 makes it unlawful for an employer to collect back any part of wages already paid. The state's labor commissioner treats commission chargebacks as allowed only when the commission plan clearly and unambiguously says commissions are subject to reconciliation and chargebacks on returns. Courts have rejected deductions for unidentified returns spread across salespeople, and the state bars deductions for business losses caused by an employee's simple negligence¹³. That last point is the one that matters for callbacks: deducting the cost of a callback from a California tech's pay is very risky.

What a defensible clawback rule looks like in practice:

• Earned when collected, not when sold. If commission isn't earned until the customer pays, a refund before payment isn't a clawback at all.
• Specific events only. Refunds, voided invoices and canceled jobs on that tech's own sales. Never "general returns" or shop-wide losses.
• A time limit. Ninety days is common. Open-ended clawbacks are hard to defend and harder to explain.
• Never below the floor. No week's pay drops below minimum wage and overtime because of a chargeback.
• In the signed plan before the sale. Not added after the dispute.

Week 5: the flat-rate-per-task tech in California

Many shops pay techs a fixed amount per task: $X per tune-up, $Y per water heater install. In California, that's very likely piece rate, not commission. The state labor commissioner draws the line clearly: pay based on a percentage of a sale is commission, while pay for the number of pieces finished or procedures completed is piece rate, and it lists mechanics paid on a "book rate" as piece-rate workers¹³.

Piece-rate workers in California must be paid separately for rest and recovery periods and for other nonproductive time, such as drive time between jobs, shop time and waiting for parts, and the wage statement has to show those hours and rates (Labor Code section 226.2, as summarized in the commissioner's manual)¹³. A flat-rate tech who spends 12 hours a week driving and restocking needs those hours paid at least at minimum wage, and their rest breaks paid at their average hourly rate, on top of the task pay.

Federal law handles piece work through the same regular-rate method: total piece earnings divided by total hours, plus a half-rate premium for each overtime hour¹⁶. There's an alternative, agreed in advance, of paying one and a half times the piece rate for pieces done in overtime hours, as long as the piece rate is a real one that yields at least minimum wage¹⁷.

1. 1

   Week 1: 55 hours

   Is overtime calculated on a regular rate that includes commission, spiffs and promised bonuses?

2. 2

   Week 2: bonus month

   Are monthly and quarterly bonuses spread back over their weeks, with overtime recalculated? Or is the bonus a percentage of total pay?

3. 3

   Week 3: slow week

   Does every workweek meet the highest applicable minimum wage, with a guarantee if needed?

4. 4

   Week 4: refund

   Is the chargeback rule specific, time-limited, written in advance, and never pushing pay below the floor?

5. 5

   Week 5: flat rate in California

   If you pay per task, are rest breaks and nonproductive time paid separately and shown on the pay stub?

Can commissioned techs skip overtime? The 7(i) question

Section 7(i) of the FLSA exempts some commissioned employees of retail or service establishments from overtime. Owners hear about it and ask whether it covers their techs. Sometimes. The conditions are strict and all of them must be met¹⁸¹⁹:

Two things owners get wrong about it.

The old list is gone. For decades, the regulations listed "air-conditioning and heating systems contractors" and "plumbing contractors" among businesses that lacked a retail concept, and some courts relied on it. The Department of Labor withdrew that list in 2020 and said it would apply the same analysis to every business²¹. HVAC and plumbing shops aren't automatically excluded anymore. They still have to pass every test above, and a shop doing mostly new construction, builder or commercial work may not.

Hourly pay isn't commission. Any part of pay that's hourly, daily or salary does not count as commission for the "more than half" test²². A $22-an-hour tech with a few hundred dollars of commission a week fails. 7(i) realistically fits a commission-heavy sales role, such as a comfort advisor, or a tech whose pay is mostly commission with a draw. State law can still require overtime even when 7(i) applies, so check before relying on it.

Put the plan in writing, signed

A written plan is a good idea everywhere and a legal requirement in some states. California requires commission agreements to be in writing, to set out how commissions are computed and paid, and to be signed, with a signed copy given to the employee¹³. New York requires a written, signed agreement for commission salespeople describing how pay, draws and commissions are calculated, how often draws are reconciled, and what's paid after termination, and if the employer can't produce it, the salesperson's account of the terms is presumed correct²³. That law is aimed at people whose main job is selling, so it likely covers comfort advisors more than repair techs, but the habit is worth copying.

Choosing between hourly, commission and hybrid

None of this is an argument against commission. It's an argument for doing the math every week instead of hoping the average week covers the bad ones.

Two practical habits matter more than which plan you pick. First, the tech should be able to check their own pay from their own job list, because confusion about pay is one of the reasons people give for leaving (see why technicians quit). Second, the overtime calculation should be done by your payroll provider or accountant using the full regular rate, every week, with commission and bonuses included.

In TradesWork, performance pay handles the commission side: rules paid when sold, completed or collected, clawbacks only for refunds, voids and cancellations within a window you set, and a My pay screen where every line shows the math. To be clear about the limit: TradesWork doesn't calculate the overtime regular-rate adjustment for commission and bonuses. It exports the earnings with timesheets and overtime hours, and your payroll provider or accountant makes that calculation.

app.tradeswork.app · Performance pay for the pay period