Are You Properly Paying Commissions?
The issue of whether commissions have been properly paid etc. is a constant thorn in the side for employers. All commission agreements should be put in writing and signed by both the employee and the employer. The various state laws due permit employers to compensate employees, in whole or in part, on a commission basis. To qualify as commission wages, the employee must be involved in selling a product or service and the commission earnings must be a percentage of the price of the service or product sold.
Draws against commissions to be earned at a later date are legal only if the draw is equal to at least the minimum wage due the employee for all hours worked in each payroll period. The draw may be reconciled against any earned commissions at an agreed date or when the commission is earned if there is an express agreement to that effect between the employer and the employee. If no express agreement exists, the draw will be considered the basic wage in lieu of salary and fix the employee’s minimum compensation.
In general, once commissions have been earned they cannot be forfeited. However, whether commissions have been earned or forfeited is based on contract interpretation and the Labor Board has made forfeitures decisions on a case-by-case basis. Be careful with forfeitures. On the other hand, The Labor Board has determined no commissions will be found to be owed an employee where a contract provides that the employee is to receive no commission on accounts where payment is not received until a set number of days (as an example, 30 days) after separation of employment. As noted above, be careful with forfeitures. Commissions may be found to have been earned and payable to an employee after separation of employment if the contract terms are overly harsh and the employee lacked meaningful choice in the contract negotiation. This is another reason to set out the terms in writing at the outset of employment. If the commission plan changes at some point remember such changes require one payroll period notice of any such change.
Finally, upon termination of employment, an employer must pay the employee at the time of termination all commission wages earned that can be reasonably calculated at the time of separation. Try to give them at least 75% and pay the remainder when commissions are normally due. Where the employee voluntarily quits his or her employment without notice, all commission wages that can be reasonably calculated at the time must be paid to the employee within 72 hours of termination of the employment relationship.