Many California employers are not aware that there is a law requiring a written commission agreement with an employee who is receiving the commission. In effect since 2013, Labor Code 2751 requires that the commission agreement is signed by the employee, is documented with an employee acknowledgement form, and includes a way to calculate and pay commissions.
What is a commission?
An earned commission is a type of wage. It is usually based on the number of units sold or the value of the units. An earned commission cannot be forfeited, and should be paid with next paycheck. If someone has left their job, then their earned commission should be paid with the final paycheck, just like vacation and paid time off is given. Since it is based on volume or value of sales, commission is not a fixed income. Productivity bonuses, incentive payments, and profit sharing plans are not considered commissions.
What should a commission agreement include?
One of the most important issues a commission agreement should include is when the commission is earned and when it is payable. Ideally, a commission agreement should be simple and short. If the agreement has an expiry date, then the agreement should be renewed before that time. Where an employee continues to work under the terms of an expired agreement, then the agreement remains in effect until a new one is signed. The base salary, commission payout, advances on commission, and commission rate calculations are just some of the issues that should be addressed in a commission agreement.
Employees work hard and expect to be compensated for their work. If there are any issues of miscalculated wages, it might be helpful to consult an experienced attorney.