Pay Your Employees Sales Commissions? If So, Read This!

An important change to California Labor Code 2751 takes effect January 1, 2013. That’s next week!

The change requires California employers who pay their employees sales commissions (regardless whether commissions are all or just part of the worker’s compensation) to enter into a written employment agreement. The law previously only required an agreement for out-of-state employers with no permanent and fixed place of business in California. Note that simply setting forth compensation terms in an employee handbook or written commission policy will not satisfy this obligation.

Here’s the fine print:

• Again, the agreement must be in writing.
• It must explain how the commission will be computed and paid.
• It must explain how a commission is earned and any conditions required for the commission to be earned.
• The employee must be given a signed copy of the written agreement and employers must obtain a signed acknowledgement from the employee confirming receipt. This signed acknowledgement should be kept in the employee’s personnel file.
• Employers who wish to terminate or change the commission policy, should do so by a written amendment or new written agreement that supersedes the earlier agreement (again, with a signed acknowledgement of receipt).
• This agreement is not required for short-term productivity bonuses.
• This law does not apply to independent contractors.

Happy New Year employers!