Precedent: Sales Commissions Factor into Overtime Pay in Israel

In a precedent-setting ruling handed down recently, the National Labor Court ruled that sales commissions must be included in wages for the purpose of calculating sick pay, vacation pay, pension contributions and overtime pay. The method of calculating the remuneration has not yet been determined and will be determined at a later stage, during the hearing of a class action in the Tel Aviv Regional Labor Court.

The backdrop to the precedent

Sales representatives (whose wages are comprised of hourly wages and sales commissions) filed a motion to certify a class action with the Regional Labor Court. According to the to employees, the employer included the commissions paid to the sales representatives as regular wages for the purpose of calculating vacation and holiday pay, severance pay and pension contributions, but not included the commissions as regular wages for the purpose of calculating overtime pay. The employer also did not include the pro rata portion of the commissions used in its calculations of annual leave pay, holiday pay and sick pay in its calculation of the pension contributions. The employees claimed that the employer is obligated to include their sales commissions in their “regular” wages for the purpose of calculating overtime pay and that the employer’s contributions to pension insurance should be based on the pro rata portion of the commissions. The Regional Labor Court dismissed the employees’ claims, who then appealed to the National Labor Court.

The National Labor Court’s ruling

The National Labor Court ruled that, considering the purposes of the Hours of Work and Rest Law, if the Hours of Work and Rest Law applies to an employee and he performs work that exceeds the quota of hours constituting a workday or work week pursuant to the law, then the employee is entitled to overtime pay that is also based on the commissions paid to him. The National Labor Court ruled that the employee’s entitlement to overtime pay calculated on the basis of hourly wages and commissions cannot be denied simply because the work generating sales commissions cannot be measured in exact hourly units, and that the consideration of fulfilling the purpose of the Hours of Work and Rest Law, which involves the obligation to pay overtime pay, outweighs the difficulties in the application of the law, under the circumstances of the case in question. Therefore, it was ruled that the employees are entitled are to a overtime pay calculated on the basis of a regular salary which includes the commissions.

The ruling prescribes that all wage components constituting part of the wage itself and constituting remuneration for the employee’s routine work, including commissions, must be included in the calculation of overtime pay.

The precedent set by the National Labor Court

To date, there was no obligation to include commissions in the calculation of overtime pay, and overtime pay was calculated solely on the basis of the base wage.

The National Labor Court’s ruling states, for the first time, that commissions paid to employees shall be included in the regular wages which are used as a basis for payment of overtime pay.

The precedent expands the provisions of the Hours of Work and Rest Law that regarding the method for calculating overtime pay, and this in a way that far exceeds the limits of the world of class actions and concerns every employer who includes a component of commissions in the payment of his employees’ wages.  

Calculating overtime pay for employees who receive sales commissions

At this stage, the National Labor Court has not ruled on the method for calculating overtime pay for employees who receive sales commissions and remanded the hearing in this regard to the Regional Labor Court. The court stated that it is likely that the commission component will be included in the “regular wage” used as the basis for overtime pay during the hearing of the class action in the Regional Labor Court (That is, the employee’s hourly salary used as a basis for calculating the overtime pay will be derived from his monthly salary, which includes the commission component).

The Tel Aviv Regional Labor Court will decide on the most appropriate calculation alternative during the hearing of the action on its merits, after hearing the parties’ positions.

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Barnea Jaffa Lande’s labor law department at is at your service to advise you in this regard and in relation to any labor law issues.