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Employment Contracts with Commissions Must Be in Writing by 2013

No more loose sales commission structures for your employees starting 2013. It’s a common sales management technique to change commission structures every few months until the sales teams “cracks” the commission short cuts, but that’s going to be a more difficult task as they must be provided in writing.

Written Contract Requirement

Effective January 1, 2013, employers are required to provide written contracts with specific details as to how employees are paid commission. Previously, written contracts for commission were required in only limited circumstances, such the case with out of state employers. The definition of commission is compensation paid for services rendered based proportionately upon the amount or value of employer’s sale of goods or services. DLSE has distinctly defined the difference between commission and bonus, where a bonus is money promised to an employee in addition to the base wage, commission, or rate usually due as compensation.

Contract Employee Still May Be At Will

This additional requirement for those employers who are not used to providing contracts to their sales teams should be aware that contracts should drafted with clarity that the employee is still at-will and not fall into a trap that changes the employee’s status.

Contract Expiration

The new law also provides that when a contract expires and where the parties continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded (by another) or employer is terminated by either party.

Exceptions to Temporary Variable Commissions

A small amendment to this law was passed late this year which provided an exception, specifically in response to auto dealers as it would have been “too burdensome for them to have to issue a new written commission plan each and every time such a special incentive is offered.” Accordingly, the amendment provides that temporary and variable incentive payment, which increase  but do not decrease payments, are not considered “commissions” for the limited purpose of the this new law’s writing requirement.

Nasir Pasha, Esq.

Post by:

Managing attorney and co-host of podcast Legally Sound | Smart Business

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