Commissions & Bonuses

State law allows employers to compensate employees, in whole or in part, on a commission basis. To qualify as commission wages, the employee must be involved in selling a product or service and the commission earnings must be a percentage of the price of the service or product sold.


A draw is similar to a loan while the employee is on the payroll. The commissions are used to “repay” the loan, thereby reducing the indebtedness owed. However, a draw is a hybrid between a loan and a fixed salary. It’s like a salary because all payroll deductions must be taken out of every draw check. As with any salary, a draw is considered wages. This means it must be paid every pay period and vests upon the employee terminating (voluntarily or involuntarily).

Draws against commissions to be earned at a later date are legal only if the draw is equal to at least the minimum wage due the employee for all hours worked in each pay period. The draw may be reconciled against earned commissions at an agreed date or when the commission is earned if there is an express agreement to that effect between the employer and the employee. If no express agreement exists, the draw will be considered the basic wage in lieu of salary and fix the employee’s minimum compensation.

Earned Commissions and Bonuses

It is illegal in California for an employer to fail to pay its employee bonuses and commissions earned even if the employee has left the company after earning the commission of bonus. However, this may not be true if the employee is paid the commission in part for a continuing service obligation.

Reasonable conditions may be placed upon the right to recover commissions. For instance, it is sometimes permissible to require that the contract upon which the commissions are based is not complete until payment of the contract price to the employer.

Commissions earned on a sale must be paid within the employee's pay period. Withholding payment of earned commissions until the end of a longer period would be a violation of California’s Labor Code. Additionally, any earned commissions may not be forfeited. Once a commission is vested, the commissions may not be forfeited as a result of the fact that the employee terminates the employment.

No commissions will be found to be owed an employee where a contract provides that the employee is to receive no commission on accounts where payment is not received until a set number of days (as an example, 30 days) after separation of employment. On the other hand, commissions may be found to have been earned and payable to the employee after separation of employment where the contract terms are overly harsh and the employee lacked meaningful choice in the contract negotiations.

Nondiscretionary Bonuses and Overtime Pay

A bonus is money promised to an employee in addition to the monthly salary, hourly wage, commission or piece rate usually due as compensation. Bonuses are in addition to any other remuneration rate and may be predicated on performance over and above that which is paid for hours worked, pieces made, or sales completed. A bonus may be in the form of a gratuity where there is no promise for their payment, for example, a holiday bonus at the end of the year. Additionally, a bonus may be a contractually required payment where a promise is made that a bonus will be paid in return for a specific result, such as exceeding a minimum sales figure or piece quota, or as an inducement to remain in the employ of the employer for a certain period of time. In general, an employee who voluntarily quits his or her employment before the payout date of the bonus is not entitled to receive the bonus.

Certain types of bonuses are included in the regular rate of pay for calculating overtime. They are known as nondiscretionary bonuses. Discretionary bonuses or sums paid as gifts at a holiday or other special occasions, such as a reward for good service, which are not measured by or dependent upon hours worked, production or efficiency, are not included for purposes of determining the regular rate of pay. A nondiscretionary bonus that is based upon hours worked, production and efficiency of the employee will figure into the hourly rate of pay for purposes of calculating overtime.

For a free consultation about California labor law violations with an experienced employee rights attorney, contact David Spivak:

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