Plenty of companies use commission incentives to encourage employees to be more invested in the company.
Generally, the calculation of commissions is very straightforward and employees are excited at the prospect of making more money.
But problems happen when they’re not in a written agreement.
And guess what, California has a law made just for this. If your business does not have a comprehensive written commission agreement, then you are violation California Labor Code Section 2751.
The agreement needs to include the method by which the commissions shall be computed and paid and be signed by the employer and employee, AND a copy must be provided to the employee.
That may sound simple enough. However, the devil is always in the details.
Explaining the method of computing and paying commissions can be quite complex. For instance, when are commissions earned by an employee? At the time of sale or at the time the employer receives payment? Also, what happens to commissions when an employee separates from the company? Are advances or draws against potential commissions part of the compensation plan? When do you actually pay commissions, and does that timing align with what is required under California law?
Don’t gloss over this one, get your company’s commission plan agreements solid this week.