{"id":4787,"date":"2016-04-04T10:47:45","date_gmt":"2016-04-04T15:47:45","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/employment-law-and-human-resources\/when-is-a-sales-commission-legally-earned.html"},"modified":"2024-06-06T05:40:45","modified_gmt":"2024-06-06T10:40:45","slug":"when-is-a-sales-commission-legally-earned","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/employment-law-and-human-resources\/when-is-a-sales-commission-legally-earned.html","title":{"rendered":"When is a Sales Commission Legally Earned?"},"content":{"rendered":"\n
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When is a Sales Commission Legally Earned?<\/h1>\n
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\n By Susan Buckner, J.D.<\/a> | Legally reviewed by Aviana Cooper, Esq.<\/a>\n | Last reviewed\n
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 Not all businesses rely on in-house workers for their business needs. Many use sales representatives who go to customer sites and sell products on commission. Sales commissions may be the seller’s only pay, or they may receive a base salary and receive their commission as a bonus or incentive pay. The employment contract determines the compensation plan<\/a> between the sales rep and the employer.<\/p>\r\n

When are sales representatives legally paid their commissions? At what point is the employer required to pay their worker for sales made in the field? Legal disputes<\/a> often arise about the payment of commissions when a salesperson leaves the company, whether voluntarily or not.<\/p>\r\n

Small business owners depend on their top performers to meet and exceed sales quotas, and those salespeople deserve to receive their fair pay. This article discusses sales commissions, how they are set, and when to pay them.<\/p>\r\n

The Sales Commission Plan<\/h2>\r\n

A sales commission is an amount of money paid to a sales rep based on the number of sales made in the pay period. The commission may be in addition to their base pay, or their salary may be entirely commissions. A business’s needs and sales team determine the sales commission structure.<\/p>\r\n

The employment contract<\/a> describes employee compensation. This way, there is no ambiguity about the amount and timing of commission payments. There are no federal or state laws requiring commissions. Each state has its own laws about the timing of commission payments. Employers should consult an employment attorney when setting up their sales compensation plan.<\/p>\r\n

Some factors which will affect the earning and payment of commissions include, but are not limited to, the following:<\/p>\r\n

State Laws<\/h3>\r\n

Most states have laws requiring the payment of commissions. For instance, California requires employers to pay commissions when earned (California Labor Code 2751<\/a>). Salespeople must receive a written copy of the commission contract separate from any other employment contract.<\/p>\r\n

There are no federal laws regarding the payment of commissions following termination of employment. Some state laws require employers to pay commissions within 30 or 45 days after termination.<\/p>\r\n

Some states, such as Arizona, exempt real estate brokers from sales commission laws. These sales fall under a different set of legal codes.<\/p>\r\n

Commission Structure<\/h3>\r\n

If a business has a sales team, the business may use a tiered commission structure. This is common in auto dealerships or other businesses where a sales force competes for customers. Tiered structures rate each salesperson by sales performance and then rank the performance.<\/p>\r\n

Other companies use a sales incentive structure based on total sales per month or pay period. Employers divide the total number of sales by the number of team members, and that figure becomes the commission for the period.<\/p>\r\n

Any method should provide a balance between teamwork and awarding personal high performance. Individual sales remain the foundation of a commission-based company.<\/p>\r\n

The Employment Contract<\/h3>\r\n

If a case comes down to litigation, the contract controls unless state law has language to the contrary. A contract should spell out the employee’s total compensation package. This includes:<\/p>\r\n