Compliance Tip #4–Written Sales Commission Plans

Effective January 1, 2013 in California, CA 1396 requires that all commission agreements must be in writing.  Here’s are some highlights of key points.  (Obviously not intended as legal advice, so consider this a heads-up to take further, more detailed action.)

Any employee hired to perform work for commissions in CA must receive a written contract, detailing payment and calculations of the commissions.

This law covers exempt “outside sales employees” and certain retail employees, as well as  non-exempt commission-based employees. (Because commissions are included in the calculation of the regular rate of pay for overtime, calculation of overtime for non-exempt employees must include commission payments.)

A commission is defined as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount of value.”

Reasonable, well defined criteria must be detailed. This would include how commissions are earned, recovery of commissions if sales are returned, or employment terminated.

The employee must receive and sign a copy of the contract and an acknowledgement must be returned to the employer.

These are just a few of the requirements.  For further information or questions, feel free to contact us at Cypress Ridge. We’ve been designing and documenting sales commission plans long before it was legally required.  It just makes good business sense.


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