Earned Commissions: Getting Paid after Termination
Provided by HG.org
Many employees expect to be paid their final wages on their last day of work or at their regular pay period. However, commission payments are often made on a different schedule. There may also be conflict about whether a commission was fully earned or not. When commissions must be paid depends on a number of factors, including the work that the employee performed before termination, the commission agreement and state wage laws.
Payment of Final Compensation
When an employment relationship is severed, an employer is required to pay the employee the full value of the compensation that he or she had earned. Full compensation may include weekly salary, hourly wage, vacation pay that was earned but unpaid and commissions, depending on state law. Generally, whether the employee left the job, was terminated or the position was no longer needed will not impact the employer’s responsibility to pay the employee.
Complexities Involved in Computing Commissions
While state law may define commissions as wages and all wages may be required to be paid upon termination, commissions have unique characteristics in the employment context. Generally, commissions are not paid the same day that they are earned. For example, if a commission is tied to a sale, the commission may not be earned on the day the sales agreement was signed but rather on the day that the sale was actually finalized. This can cause a delay between the time the worker earned the commission and when the payment becomes due. Often, employers cannot calculate the total amount due to the employee until all payments on the sale have been received by the employer. Once employers receive payments from the customer, the employee’s commission should be paid. This may result in the employee receiving multiple commission checks. Additionally, when the employer makes commission payments to the employee will also depend on the agreement between the parties and state law.
Completion of Activities
Before a commission may be considered fully earned, you may have to complete certain work-related activities for your employer to consider that you have fully earned the commission. Once the commission is calculable and can be determined to have been earned, it is usually due within a specific timeframe just as the commissions earned during the ongoing employment relationship were due.
Written Commission Plan
Many workers who earn commissions, such as real estate agents, insurance agents or car salespeople may have written commission plans. These plans may outline the activities that must be completed in order for the commission to be considered earned. Additionally, they may also indicate the standard commission payment plan and whether there are any differences related to the final commission payment. Additionally, this plan may cover whether an employee may be entitled to a percentage or amount of the sale commission if the full amount is not considered earned. Employees should retain all employment contracts, employment handbooks and other employment documents that discuss commission payment schedules.
Communications between the Parties
Even if there is not a written agreement between the parties, there may be an agreement based on their communications together. The communications may indicate the employer’s intent to pay a commission on the sale or that the commission will be paid after a sale is finalized.
Laws Regarding Commissions
State laws may vary significantly when it comes to commissions. Some states specifically prohibit employers from withholding sales commission that were earned prior to the severance of the employment relationship. States may have specific requirements that state when commissions to terminated employees must be paid. For example, in California, commissions are considered a form of wages. Under the state’s Labor Code, wages must be paid within a specified time period after they are earned. When an employee’s earned commission cannot be reasonably calculated on the employee’s last day of work, the employer is required to pay the earned commission when it can be reasonably calculated. If the commission was earned before termination, the employer must calculate the commission payment and pay it on the last day if given at least three days of notice before the employee quit or within 72 hours of terminating the employee. In the state, it is not allowed to delay the payment of the commission until the next regularly scheduled payday.
Get Help from an Experienced Employment Lawyer
If you believe that you are entitled to a final commission payment, you may wish to contact an employment lawyer to discuss your rights and to learn about the options available to you based on the facts specific to your case.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.