Employers who do not pay employees the commissions they have earned may violate California law. A commission that has been promised and earned must be paid by the employer. The employment attorneys at San Francisco’s Minnis & Smallets help employees recover unpaid commissions. We also represent employees who experienced retaliation after complaining about or seeking the payment of commissions that were earned but not paid.
Commissions are an employee’s earnings that are based on a percentage of the payment that an employer receives for products or services that the employee sold. A salesperson might be paid solely on the basis of commissions or might receive hybrid compensation that consists of both wages and commissions.
Commissions are different from bonuses. A discretionary bonus is money paid to an employee that is not based on any objective criteria or stated reason. This type of bonus is completely within the employer’s discretion. By contrast, a non-discretionary bonus is money promised to an employee pursuant to the terms of a bonus plan that becomes binding, according to its terms, once an employee begins to perform under the terms of the plan.
Some salespersons who are paid by commissions are still protected by minimum wage and overtime laws. Whether overtime laws apply depend on a number of factors, including whether the salesperson works inside or outside the place of employment, the nature of the work, the amount of compensation earned, and the percentage of earnings that come from commissions. A salesperson who is uncertain whether overtime compensation is required should seek legal advice.
When any part of an employee’s compensation consists of a commission, California law requires the employee to enter into a written agreement with the employee. The written commission agreement must specify how the commission will be calculated.
The commission agreement should state when the commission is earned. For instance, a commission might be earned when a customer signs a sales agreement, when delivery is made, or when the customer pays.
An employee who is paid by commission but does not have a written commission agreement should seek legal advice. It is also wise to seek legal advice if the commission agreement does not clearly specify how commissions are to be calculated or when they are earned.
Once a commission is earned, it must be paid on the same schedule as other wages. Most California employees must be paid at least twice a month. A commission payment should be made when paychecks are issued that cover the payroll period during which the commission was earned.
Employees who are fired or laid off must be paid their commissions immediately to the extent that the commission has been earned and is able to be calculated. Employees who give notice at least 72 hours before they quit must be paid their commissions on their last day of work to the extent that the commission has been earned and can be calculated. Employees who give less than 72 hours’ notice must be paid their commissions within 72 hours after the last day of work, again to the extent that the commission has been earned and can be calculated. Employers may, however, delay payment of some or all earned commissions by the reasonable time it takes to calculate them if they cannot be calculated immediately.
California law prohibits employers from retaliating against employees who ask or complain about unpaid commissions. In certain circumstances, it may be unlawful for an employer to terminate an employee in order to avoid paying commission to the employee. It is also unlawful to retaliate against an employee who provides information to any government agency, such as the California Department of Labor Standards Enforcement (or Labor Commissioner) about nonpayment of commissions.
Retaliation includes discharging, demoting, suspending, or disciplining an employee in any way, if that action was motivated by the employee’s exercise of the right to seek payment of earned commissions.
The employment lawyers at Minnis & Smallets have helped many salespersons and other employees recover unpaid commissions. To learn more about how the nonpayment of a commission can be addressed by our skilled legal team, call us at 1-415-551-0885 or submit a question using our online contact form.