Retail Businesses: Payroll Compliance Guide (2026)

The rules that reach retail businesses specifically

Commissioned employees of a retail or service establishment are exempt from overtime under section 7(i) only when three conditions are met: the employee works for a retail or service establishment, the regular rate exceeds one and one-half times the minimum wage for every hour worked in an overtime week, and more than half of total earnings in a representative period of one month to one year are commissions. If any condition fails, overtime is owed at time and one-half for hours over 40.

Workers aged 14 and 15 may work in retail jobs such as cashiering, bagging groceries, and stocking shelves, but only outside school hours, no more than 3 hours on a school day, 18 hours in a school week, 8 hours on a nonschool day, 40 hours in a nonschool week, and between 7 a.m. and 7 p.m. (9 p.m. from June 1 through Labor Day). Workers under 18 may not operate balers or compactors, and 16- and 17-year-olds may only load certain scrap paper balers under specific rules.

Employers may pay a youth minimum wage of not less than $4.25 an hour to employees under 20 years of age during their first 90 consecutive calendar days of employment. Employers may not displace other employees to hire at the youth wage, and a higher state or local minimum wage with no youth exception applies instead.

A tipped employee is one who customarily and regularly receives more than $30 a month in tips. An employer must pay a tipped worker a direct cash wage of at least $2.13 per hour and may claim a tip credit of up to $5.12 per hour, and must make up the difference in any workweek where cash wages plus tips fall below $7.25 per hour.

The duties every employer carries

Federal income tax withholding, Social Security and Medicare, FUTA, deposits on the monthly or semiweekly schedule the lookback period sets, quarterly Form 941, annual W-2s and, for retail businesses paying contractors, 1099-NEC at the $2,000 threshold in force for tax years after 2025. A late deposit starts at a 2 percent failure-to-deposit penalty and climbs to 15 percent.

An employer relying on the section 7(i) exemption must keep accurate records of hours worked each workday and workweek and of earnings and wages paid, and must select a representative period of at least one month but not more than one year to test whether commissions exceed half of the employee's earnings. Without hours and earnings records the employer cannot substantiate the exemption.