At the nexus of high fashion, celebrity, and international trends, luxury retail is an exciting and lucrative industry for both employers and employees. However, the luxury retail space also comes with unique wage and hour considerations that employers must pay attention to, particularly those operating in New York and California. Luxury retail employers should make sure they comply with applicable timekeeping, wage payment, and commission laws for each of their retail locations. This article identifies potential areas where retail employers should pay special attention to avoid violations of applicable federal and state laws.

Commissions

To drive sales, and given the cost of luxury merchandise, many retailers pay their associates an hourly rate plus commissions earned on sales. Under federal and state wage and hour law, commissions must be counted as regular pay and included in the applicable overtime calculation. Such calculations can be difficult for employers when commissions correlate to a time period that does not align with a pay period (e.g., quarterly sales commissions) or are flat rate in nature, as well as when employers permit “draws” against commissions. Notwithstanding, federal and state laws require that employers allocate commissions to the weeks in which they were earned to properly calculate overtime. Because of this, it is critical that employers coordinate with their payroll departments to ensure that commissions are properly earmarked and factored into overtime calculations. 

Additionally, both New York and California have stringent rules for commission programs. They require that employers who provide commissions have a written agreement detailing, among other things, how commissions are earned, calculated, and paid. Separately, federal law provides an overtime exemption specific to retail/inside sales that is applicable if the majority of an employee’s pay is commission-based and the regular rate of pay exceeds 1.5 times the applicable minimum wage rate. New York recognizes this exemption, and California has an equivalent exemption.

Unscheduled work

One pitfall frequently seen in the luxury retail space is unscheduled or off-the-clock work, i.e., when employees perform work outside of their scheduled shifts. In luxury retail, this often occurs when sales associates use social media or text messages to contact their customers to inform them that new or hard-to-find merchandise is available for purchase or order. While this practice helps associates generate potential commissions, it amounts to compensable work. This can result in exposure for employers because they often do not have visibility into such unscheduled work performed by associates. To best avoid this, employers should have written policies on unscheduled or remote work that require work to be performed only during a scheduled shift or with the prior written approval of a supervisor.

Misclassification of managers

Luxury retail employers must also be careful with how they classify their managers. For assistant managers or store managers to be exempt from overtime under federal and state law, the employee must meet the applicable duties and salary tests. Generally speaking, this means managerial employees’ primary duties must include managing a store or a specific department, directing the work of at least two other full-time employees, and having the authority to hire and fire other employees (or having opinions on hiring and firing that carry weight). In addition to the foregoing duties, managerial employees must meet the applicable salary threshold for the jurisdiction in which they work. In California, employees must earn at least two times the state minimum wage to qualify for this exemption (which comes to $68,640/year in 2025). In New York City, Westchester, and Long Island, the salary threshold for managerial employees is $64,350/year in 2025. These thresholds tend to increase each year, so employers should be sure to adjust managerial employees’ salaries appropriately.

It is important to note that title alone is not dispositive; if most of the work performed is non-managerial in nature, then the exemption likely does not apply. In addition, if a manager has some managerial duties but does not meet both the relevant salary threshold test, they should not be classified as exempt. Further, fluctuations in salary or improper wage deductions also jeopardize the exemption. Unless a manager clearly meets the exemption criteria, the best course of action is to treat them as non-exempt (i.e., paid an hourly rate plus overtime).

Conclusion

The luxury retail industry implicates unique aspects of federal and state wage and hour law, particularly in New York and California, which have burdensome and nuanced requirements. In light of this, it is critical for employers to have clear written policies on unscheduled work, commissions, scheduling, and breaks. Additionally, managers, HR, and payroll should collaborate to ensure that wages are calculated properly, commissions are paid in accordance with the law, and employees are properly classified. Noncompliance with these various requirements can expose employers to fines, penalties, and lawsuits by both employees and applicable regulatory agencies. Reed Smith’s Labor & Employment attorneys are able to help employers navigate this challenging landscape and stay in compliance.