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Commissions: How do they work?

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Sales employees are generally compensated with commission compensation structures.  Sometimes a commission is paid in addition to a salary, other times its paid instead of salary.  The tech industry employs so many sales reps, that they generally pay with the former compensation structure above (combo base and salary).  For both the employer and the employee there are so many questions surrounding how commission structures work.  Federal law addresses it, states have their rules own too.  Here are some basic facts about commissions in New York:

  • The Labor Law requires that a commission salesperson agreement must be in writing and signed by both the employer and the salesperson. It must contain:
    • A description of how wages, salary, drawing accounts, commissions, and all other monies earned and payable will be calculated;
    • How often the employee will be paid;
    • The frequency of reconciliation (if the agreement provides for a revocable draw);
    • Any other details pertinent to the payment of wages, salary, drawing accounts, commissions, and all other monies earned and payable when the employment relationship ends.
    • The employer must provide the commission salesperson, upon written request, with a statement of earnings paid or due and unpaid.
  • When is a commission considered “earned?” Commissions are earned at the time specified in the written employment agreement. If the agreement is silent, a commission is considered to be earned in accordance with the past dealings between the employer and commission salesperson. If none exist, then a commission is considered earned when the commission salesperson produces a person ready, willing, and able to enter into a contract upon the employer’s terms.
  • Once a commission is “earned,” it is legally considered “wages” under the  Labor Law and subject to all other provisions of
    the Labor Law regarding the payment of wages.
  • Even if the employment relationship with the employer has ended, the commission is considered wages and still has to be paid to the employee. If the commissions have not yet been earned, the terms of the written employment agreement, which must include language addressing this situation, will control.

Commissions can be complicated.  Employers should be extra cautious when using them, and should be educated on not only the federal requirements, but the state’s too.   As you can see, New York’s Labor Law directly addresses many of the issues surrrounding Commissions.

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