In certain industries, employee compensation is based on commissions from actual sales. When these commissions are paid varies by employer, but generally payment is only made after a sale has closed and the company has received payment for the sale. Because of the inevitable delay between when a sale is negotiated and when payment is received, conflicts can arise, particularly if a salesperson’s employment is terminated and commission payments are pending.
The courts have differed on whether, and if so, when, commission payment is owed after termination of employment. Generally, several factors are considered:
- Terms of the contract
- Level of involvement by the employee in procuring the sale
- Other circumstances of both the sale and the termination of employment
If compensation is based on commission, an employer should establish and announce a clear commission payment schedule including:
- Salesperson’s responsibilities in the sale transaction
- Criteria for when a sale is considered closed
- When commission for a closed sale is paid
- Effect of incomplete, renegotiated or cancelled sales on commission
- Guidelines for payment of commission after termination of employment
- Variances in guidelines depending on voluntary versus involuntary termination, if any
All other compensation terms, including recoverable and irrecoverable draws, should also be specified.
If your employer does not have clear guidelines on commission policies as outlined above, then you should request clarification to avoid any future conflicts.
Whether you are an employer or an employee, if a conflict arises regarding a commission payment, seeking advice from an employment attorney specializing in compensation and employment issues can help determine the prevailing decisions in your jurisdiction and the likelihood of success in your case.