Forums: Discussions for entrepreneurs and small business.

Hi everyone,

Here`s a question that I really don`t know the answer to. Am I required to pay commissions to a sales person who no longer works at my company for jobs they closed before they left?

We have told the ex-employee that we would honor those commissions but they keep hounding us on this because we haven`t been paid by our clients yet for the work (typically it`s 45-60) days before we get paid.

What I would like to find out is if I am required to pay commissions to these employees after they have left our company. I have been told by different sources that we are not required to do so, so I`m just trying to find out some more info.

Thanks.

~Allen

There is no one answer to this (I`ve been on both sides) and only a legal representative can tell you.  The rest of us are just being anecdotal.

If you have a written agreement with the sales person, you need to show that to an employment lawyer.  If your agreement was verbal, you have to share that with the lawyer (and don`t hedge - be totally honest - it`s binding!).  If you have neither, then how you have done business with that sales person over the months/years will be the contract.

So if you always paid the commissions for closed business even if your customer didn`t pay you, you can`t change that now.  And if they eventually pay you, and the business was closed before you left, that`s where the lawyer comes in.  I would say you should do business like you always did, and if the sale closed before the person left, you should pay them.

You should also take into consideration the greater cost of having your existing sales people and/or ones that might join you later finding out about this.  Nothing amazes me more regarding sales than the short-sightedness of business owners who are williing to anger their existing and future sales staff in order to save a few bucks on one that`s leaving.  What does that communicate to them about how you will treat them?  And how much money do you think it costs you to have them distracted with this?

It may not be the legally necessary thing to do, but I`d do everything I could to part ways better than the sales person themselves would even have expected.  It`s a small world.


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Excellent comment Blakeman

I can do nothing more than eco your words. Even in a good arrangement gone bad, it never hurts to be the nicer. Word gets around and it does encourage quality sales reps, to want to work for you. There’s nothing wrong with letting the market (of potential employees) know that you “give” the best because you expect the best (in salesmanship). Everyone is happy with making a “fair” living. I think the word even reaches consumers.

I know my acquaintances say, “start at Intel and you never have to worry about looking for work again.” On the employment level, this attitude pays off (for the business) because the employee pool begins to fight for position. At the consumer level, this attitude pays off in the emotional involvement of the brand.

It’s also great to hear the news say, “Intel has decided to lay off 2300 workers, but they are given severance pay based on experience with the company.” I am sorry to hear about the laid off workers, but I love to hear they (Intel) “take care” of their people. You can see the effect on the community… the customers. They are looking for Intel chips on the market. What computer chip is in your system?

Brand Loyalty?

I know this is an example of a mega chip making company, but the principals are the same on a smaller scale.



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Vincent Wilcox (a.k.a. KRAKR)
Drummer
My band: Letters Make Words

Actually, AMD is in my computers. 

All kidding aside, thanks for the info. We`re definitely not out to screw our employees over (even ex-employees) but also want to make sure we`re doing things the proper way as well.

~Allen

Not sure what state you are working in, but in California the law is very clear.

Payment Of Wages Not Calcu lable U ntil After Termination. There are situations where wages (i.e., some commissions) are not calculable until after termination and, thus, are not due until that time. The employer has an obligation to pay those wages as soon as the amount is ascertainable an d failure to pay th ose wages a t that time will result in imposition of waiting time penalties. (See discussion in O .L. 1999.01.09)

4.6.1 Inability to pay is not a defense to the failure to timely pay wages under Sections 201 and 202 and does not relieve the emplo yer of penalties under Section 203. As noted above, the civil penalty assessed under Labor Code § 203 does not require that the employer intended the a ction; merely that the action occurred and it was within the employer’s

contro l. (Davis v. M orris (1940) 37 Cal.App.2d 269; 99 P.2d 345)

4.6.1.1 In addition, of course, ignorance of the law is no exc use. (Hale v. Morgan (1978) 22 Cal.3d 388, 396 ) Thus, failure to comply with the payment sections based on the fact that the employer did not know of the requirements is not an excuse.

4.6.2 The case of Diaz, et al v. Slaten (Placer Co. Sup. Crt. Appl Dept. (1997) unpub. opinion) attached, accurately reflects the DLSE policy. The opinion of the court, adopted the view of the D LSE. (See O.L. 1996.11.20)

4.7 Payment Of Wages By Insu fficient Funds Instrument. Any employee who, during the regular course of employment or upon discharge, is paid with a non-sufficient funds instrument is entitled to recover a penalty of one day’s pay for each day those wages remain unpaid . The pe nalty shall not excee d thirty days’ of wages. (Labor Code § 203.1)

4.7.1 Penalty Applies To Wages During The Course Of Employment Or At Time Of

Termination. It is important to no te that the p enalty provided in Labor C ode § 203 .1 applies to any wage s paid with a n on-sufficient funds instrument. Thus, if an employee is paid during the regular course of employment with a non-sufficient funds check the employee is entitled to recover penalties for each day the w ages rem ain unp aid up to a thirty-day maximum.

4.7.2 If the NSF check is provided for payment of final wages owed pursuant to §§ 201, 201.5, 202, or 205, the employer would be subject to penalties both for payment by NSF check un der § 203.1 and for penalties under § 203 for late payment of final wages.

4.7.3 The penalties also app ly to non-payment of “fringe benefits”. This provision has not been tested in the Califo rnia cou rts and the issue of the pre-emptive effect of ERISA may play a role in the final an alysis of any case b rought und er this section.

4.7.4 The penalty provided in Section 203.1 is not applicable if the employee recovers the service charge authorized by Section 1719 of the Civil Code.

You can go to the Department of Industrial Relations website at www.dir/ca/gov and go to the  DIVISION OF LABOR STANDARDS ENFORCEMENT POLICIES AND INTERPRETATIONS MANUAL on the left sidebar.

PAY THEM THEIR COMMISSIONS!!!!!! It`s just not worth the hassle of going to the labor commissioner and then not winning your case.

Most states have laws on this. You need to find the law for your state. In some cases, where it`s a long sales cycle and they did most of the heavy lifting, you are even required to pay commissions on sales that closed after they left.