Commissions

Commissions In some jobs, especially ones that involve sales, a significant portion of your total compensation package may be comprised of commissions. Generally, commissions are payments that are based on your own sales or productivity, although for some sales managers or other executives they also can be based on the sales or productivity of the employees who report to you. Our employment lawyers experienced at handling cases involving commissions.

Calculating Commissions

Commissions are typically calculated using a formula. While the formula can be a simple as a percentage of your total sales, some commission plans can be complicated and confusing. They can factor in profit margins, costs of goods, sales volumes and a variety of other factors. In fact, some commission plans seem to arbitrarily set different formulas for different sales.

Whatever formula your employer uses, it is important that you understand how your commissions are supposed to be calculated so you can confirm that you are being paid properly.

When Are Commissions Earned?

There are many possible times at which an employee can earn their commissions. For example, in some jobs commissions are earned when the sale is booked or when the sale is closed. In other situations the commission is not considered earned until the customer actually pays for the good or service it is purchasing.

When Are You Paid Your Commissions?

The timing of payment of commissions to employees also can vary greatly. For instance, companies might calculate and pay commissions monthly, quarterly, or annually. Obviously, this can have a substantial impact on your cash flow, especially if your base salary or draw is relatively low.

Another important factor is how long you will continue to receive commissions on a particular customer or a particular sale. For example, if you bring in a new customer, depending on your agreement, in the future you might receive commissions only on additional the sales you make to the customer, or you could receive commissions on all business that comes in from that customer. Likewise, you may be entitled to commissions if the customer renews the order or subscription you initially sold to it.

You should know if and when you are entitled to receive commissions if one of your customers renews its contract or orders additional goods or services from your employer in the future. It also is important to know if and when you would be entitled to continue to receive commissions from a customer after you leave your job.

Draws

Many commissioned employees receive a draw against their commissions. While these payments often look like a salary, they really are an advance toward future commissions the company hopes you will earn. Unless a draw is guaranteed, if your actually commissions are less than your draw then it is possible your employer could be entitled to withhold future commissions, or even ask you to pay back some of the money you already have received.

Commission Disputes

If you have a dispute relating to your commissions, our employment lawyers can help you. For example, we can assist if your employer is not calculating your commissions correctly, or is refusing to pay the commissions you have earned when they are due.

Drafting and Revising Commission Agreements

Attorneys in our business and entrepreneurial practice are experienced at reviewing employment contracts that include commissions, including executive compensation agreements. We can help you understand your employer’s commission plan and suggest ways to clarify or improve how your commissions are calculated and paid. Similarly, we can draft a commission agreement to protect your rights and interests.

Changes to Commission Formulas

Employers generally cannot change their commission plans after-the-fact. Rather, employers are required to notify their employees in advance of any change to the applicable commission formula. For more information you may be interested in reading one of the following articles from our Employment Law Blog:

Contact an Employment Lawyer

If you work in New Jersey or New York and have a question or concern about your commissions, or would like to schedule a consultation with one of our employment lawyers experienced at handling cases involving commissions, please feel free to either contact us online or call us at (973) 744-4000.