A sales commission is generally defined as the percentage of compensation that is paid to a worker who either completes a sales transaction for a particular item or exceeds a specified number of sales within a given time frame. It is also known as simply a commission. For instance, a real estate broker typically earns a commission (i.e., a percentage of the total cost to buy a house) when the homebuyer that they represent purchases a new home.
Sales commissions are most frequently used as a form of payment for workers who are employed in sales roles. These include examples such as a real estate broker, a car salesperson, or an insurance agent.
Depending on individual company policies and the terms agreed upon when signing an employment contract, a worker may only be paid by earning a commission on a sales transaction. Alternatively, an employer may also opt to pay some salespersons a low hourly rate on top of their commissions.
Under standard commission law, however, the factors and requirements for sales commissions can vary considerably based on the jurisdiction. As mentioned, company policies and employment contracts can affect these payments as well. Thus, it is especially important to review company policies, employment contracts, and the wage and hour rules for payment of sales commissions after an employee is terminated in a given state.
For example, some states have enacted statutes that prohibit employers from withholding a sales commission from an employee if it was earned before they were terminated.
The one factor that is seemingly a constant across all sales compensation matters is that commissions are not typically paid on the same day that a sale was made. The reason for this is because there is usually a delay between the day of the sale and the receipt of final payment. Thus, obtaining commission for a sale can be a daunting task if an employee is terminated before a customer’s final payment is due.
Therefore, it may be in your best interest to hire a local employment law attorney immediately if you have been terminated and are experiencing issues with collecting an earned sales commission from your former employer.
Are Commissions Owed after Termination of Employment?
As discussed above, whether a worker is owed sales commissions they previously earned before being terminated by an employer will depend on a wide variety of factors, such as:
- The terms of a worker’s employment contract;
- The facts surrounding both the sales transaction and the grounds for employment termination;
- An employer’s company policies and requirements in regard to collecting sales commissions after an employment termination;
- How involved an employee was in procuring the sales transaction;
- The customs or standards abided by for sales commissions in a particular industry;
- How sales commissions are calculated under state law or by an individual employer;
- The commission payment schedule that an employee agreed to when they were hired;
- The wage and hour laws enacted in a specific state; and/or
- Various other conditions that may affect the overall sales commission, the receipt of final payment, employment termination, and the processing of sales commission payments.
In general, an employer should expect to pay any wages, salaries, or sales commissions that were earned before a worker was terminated since these are considered different forms of wages and thus are required to be paid under state and federal law.
Additionally, employers must comply with the guidelines laid out in their own company policies, work documents, and contracts for sales commission payments after a worker undergoes the process of employment termination.
As an Employer, How Should I Pay Commissions?
As long as an employer creates policies and employment contracts that fall within the confines of the law, they may pay sales commissions to their employees in any manner that they wish. Also, employers should make sure that any and all compensation terms are clearly defined and unambiguous.
In addition, if the only compensation that a worker receives stems from sales commissions, then the employer should establish an easy and comprehensible sales commission payment schedule. Some examples of details that an employer may want to incorporate in such a schedule include the following:
- The duties a salesperson has when conducting a sales transaction;
- The criteria for when a sales transaction is considered to be officially closed;
- The timing for when the sales commission for a closed sales transaction is paid to the employee;
- The rules for sales commission payments after an employee is terminated from their sales job;
- The next set of steps to follow when a sales commission is connected to an incomplete, renegotiated, or cancelled sales transaction; and/or
- The different guidelines imposed for sales commission payments that are associated with an involuntary versus a voluntary employment termination if any such differences exist.
What Should I Expect as a Commissioned Employee?
Commissioned employees should expect to review the terms of their employment contract, an employer’s company policies, and the laws in their state. This should be done in order to determine the outcome of what happens when a worker is terminated from a job, but is still owed sales commission payments.
However, if an employer has neglected to provide clear guidelines regarding their sales commission policies, then a worker should discuss this issue and request further clarification to help prevent any legal disputes from arising about such issues in the future. This can save both parties a lot of time and other resources.
Additionally, a commissioned employee should also check the laws for employment termination in the state that they work to ensure that they were not wrongfully or unlawfully terminated. In some cases, an employee may be able to obtain sales commission payments if their firing was based on illegal grounds and they can prove it.
Can I Sue for Unpaid Sales Commissions After Employment Termination?
The first step that an employee should take if they have outstanding sales commissions payments, which they believe they are still entitled to even after employment termination, is to speak with their supervisor. This will ensure that the situation is more than just a simple misunderstanding or clerical error causing the issue. Otherwise, the employer can fix it and pay the employee without any further legal action.
If an employer is not cooperating and it turns into a dispute, an employee should consult a local employment lawyer to determine their next best course of action. In some states, a worker will need to file with a specific government agency before they can bring a lawsuit. In other states, a worker may be permitted to sue their employer for the unpaid wages immediately.
A worker can also enter into informal negotiations, mediation, arbitration, or attend some other form of dispute resolution to resolve the sales commission issue. Again, these types of proceedings tend to be quicker and less expensive than litigation.
If these tactics also fail, then the worker should absolutely hire a lawyer who can confirm whether they have a viable claim to bring a lawsuit against their employer. The worker will most likely be able to collect unpaid sales commissions after they have been terminated if they can prove the claims cited in their case and win the lawsuit. Unpaid sales commissions may be issued to workers who prevail on such lawsuits as one of several legal remedies.
In any event, a worker should consult their employment paperwork and the labor laws in their state, as well as retain counsel for further legal advice on the matter.
What Else Should I Know About Payment of Sales Commissions After Employment Termination?
As discussed throughout the article, failure to pay sales commissions after an employment termination may result in a lawsuit for wage theft. While this will depend on the circumstances surrounding a particular case, a worker may be able to recover damages along with their commission if they can prove their employer’s actions constituted wage theft.
A worker may also be able to bring a claim for breach of contract if they are paid a lesser percentage of sales commissions than what was agreed to when they were initially hired or while negotiating the terms of their employment contract.
One other claim that can serve as the basis of a lawsuit in which an employer may be able to recover sales commission payments is that of wrongful termination. For example, if a worker was unlawfully fired for discriminatory reasons, then they may be able to collect sales commission payments as part of their damages award or legal remedies if they win their case.
Do I Need an Attorney?
Although it is not necessary in every situation, you may want to consider hiring a local employment law attorney if you are involved in a dispute over a sales commission issue that is connected to an employment termination case.
An employment law attorney who specializes in handling employment and compensation issues will be able to assess your chances of bringing a successful lawsuit against an employer based on the circumstances surrounding your matter.
Your attorney will be able to advise you on the relevant employment laws in your state and can discuss your legal rights and protections as a terminated worker under those laws. Depending on the facts of your case, your attorney can also guide you through the process of filing an unpaid sales commission lawsuit in court. Alternatively, your attorney can attempt to negotiate a payment arrangement with an employer on your behalf.
In addition, if you need to appear before a judge or an administrative panel, your attorney will be able to provide legal representation during these types of proceedings as well. Regardless of which legal action you decide to take, your attorney can help you navigate the necessary legal channels to ensure that you receive the sales commission that you are entitled to. They can also ensure that your employment law dispute finally gets resolved.