Commission Payments - Are They Mandatory or Discretionary?

Commission-based pay is often mandatory if it is part of a contract for employment with a company. These types of payouts are typically offered to support a lower base salary or may also be offered as the sole income. Discretionary commissions can also occur if there is no contract in employment with the company.

Commission Pay

Generally, a person who receives commissions does so either through contract requirements or through discretionary situations that may not always provide commission. These situations also change based on the company and the contractual obligations. For someone promised commission through sales, the person may have a verbal or written agreement stating that commissions will give payment to this person in a certain way. However, if there is no agreement beforehand, the company may have a discretionary way to give commission that is up to the owner or company. If the commissions are not mandatory, they may only occur when the owner has the funds or wants to provide bonuses.

Commission and Overtime Pay

Sometimes, the bonuses given through commission can affect overtime based on the number of hours the person works to acquire the sale. This can also raise the standard rate of pay the person will receive. If there is no agreement to provide commission, the company may consider not giving the commission because of these additional factors. Non-exempt employees must receive overtime pay for the more hours worked above the 40 limit each week. With commissions, this can increase the normal hours and the pay in addition to the commission granted. Without contractual obligations to pay, the company may decide to forgo the commission.

Discretionary Commissions

Generally, a company has the option to provide bonuses through a commission with sales or when acquiring new clients. If the person is the reason the company has a new client or sale, the employee can get a bonus through commissions to the sale of products or services. The business may decide to give out commissions through discretionary policy rather than work these in through a contract. If this is the case, the money could change through increases or decreases of business and may not occur at all depending on the situation with the business.

Discretionary Pay and Standard Pay

When the business provides discretionary commissions, this may not affect standard pay with the company. Additionally, the company could work in a policy that provides additional income through bonuses as commissions but that are not part of standard pay and may not have the same income tax rate. Companies can find ways around several policies and changes with the laws depending on how much the owner wants to ensure the betterment of employees over the managers or shareholders. Smaller companies may only provide discretionary commissions that could disappear at any point. There is no option to sue for the lack of the commission if this is the policy.

Contracts and Policies

There are times when the employee that acquires commissions does so through contract employment. Any lack of providing a commission based on contractual terms as necessitated by the legally binding document is a breach. Many contracts have clauses about breaches and that the employer will owe certain damages for the breach. These payouts for the breach are often in addition to the commission already owed to this person. With contract employment, the person must receive the commission as stated in the provisions or the company could face negative consequences.

Other mandatory or discretional commissions occur through company policy. If the employer violates the policy, he or she could face administrative action from within the company. The victim of these decisions can also hire a lawyer to present the case to the board within the business that oversees these matters. While the individual may need to follow this process first, legal recourse in a courtroom is often the last step available if the board does not overturn the decision through an appeal. The employer can face penalties for these actions when disregarding policy with one specific employee rather than changing the policy for the entire company. It is important to follow these guidelines for all workers.

Legal Support for Commissions

While the person receiving commissions must understand if they are mandatory or discretionary, a lawyer can explain the situation as well. If there is a breach of the contract with employment, the lawyer can also help the person acquire the damages and commission because of the breach the employer committed when removing the commission.

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Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws they may affect a case.

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