When Earned Commissions Must Be Paid
State wage laws set when earned commissions must be paid, including after an employee leaves. A pay schedule that is clear in writing avoids most disputes.
What to know.
A written commission plan should say when a commission is earned, when it is paid and what happens at separation. Check your state’s rules on timing.
Where payment is delayed, such as until a customer pays, the plan should say so clearly. A vague plan is read against the employer.
Where to look next.
Commission Payment Overview
How these accounts work.
Compensation Strategy
How benefits fit total pay.
Compliance Calendar
The dated filings employers owe.
Writing Commission Terms That Work.
Disputes over commissions usually come from unclear terms: when was the sale made, when is the commission earned, and when is it paid? A written plan that answers those questions in plain language avoids most of them.
State wage laws also set timing rules for when earned pay must be provided, including after an employee leaves. The rules differ and counsel should confirm what applies to you.
Have employees sign the plan, and keep a record of changes. When the plan changes, give notice in advance.
Common questions on this topic.
Four questions to settle before you rely on it.
When is a commission earned?
As the plan says. Many plans tie it to a defined event, such as the sale or payment by the customer.
Do we pay after the employee leaves?
Earned commissions are generally owed. State law and the plan decide the timing, so ask counsel.
Can payment wait for the customer to pay?
Only if the written plan clearly says so and state law allows it.
Who can help us write it?
An employment attorney, with input from HR and finance.
Should the plan cover quotas and territories?
If they affect pay, yes. Keep the terms specific.
How often should we review the plan?
At least yearly, and whenever products or pricing change.
Can the plan be changed?
Usually prospectively and with notice. Ask counsel about existing earned commissions.
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General information, not legal or tax advice. Plan-specific questions belong with your counsel or CPA, and we will bring them in.
Related guides.
Commission Payment Accounts
The overview this page belongs to.
Compliance Services
How CFH supports the compliance side of your plans.
Commission Clawbacks and Employee Consent
A related question on the same program.
Where the Rules Come From.
The laws and rules named on this page link to the statute or regulation they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Employer Wage Deduction Rule (29 CFR 531.35)
The rule that wages be paid free and clear.
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