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. Its 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 employees minimum
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
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 Californias 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:
- Email David@MyWorkMyWages.com
- Call toll free (877) 277-2950
- Visit The Spivak Law Firm, 16530 Ventura Boulevard Suite 312 Encino, CA 91436
- Fax (310) 499-4739
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