California Sales Commissions Guide
This article is for employees who earn sales commissions in California. It’s a quick guide to help you understand your rights.
What is a Sales Commission?
A sales commission is an amount paid to an employee based on a percentage of a sale. Sales commissions are treated like wages and must be paid promptly when due.
Written Commission Agreements are Mandatory in California
In 2013, California passed a law requiring the use of written commission agreements that explain “the method by which the commissions shall be computed and paid.” The company must share a copy of the signed agreement with the employee and keep a copy on record. If the agreement expires and the employee keeps working for the company, then the terms of the expired agreement will still apply unless it’s replaced with a new agreement.
Commission Agreements Must Specify When Commissions are Earned
One of the key provisions of a commission agreement is explaining exactly when, and how, a commission is earned. The agreement must specify what conditions must be satisfied before the commission is earned. Once the commission is “earned,” it must be paid promptly as treated as all other wages.
When Sales Commissions are Due
Once earned commissions can be calculated, they must be paid during the next payroll cycle.
You would think that once a commission is earned, that it’s yours. But some employers insert what is known as a forfeiture clauses in commission agreements. A common forfeiture clause is one that requires employees to be employed at the time payment is made. This means that an earned commission can be lost if the employee is fired or quits before the commission paid out. Not all courts enforce these forfeiture provisions because they are unfair. If a commission is earned, it should be paid but not all courts agree. If you see a forfeiture clause like this in a commission agreement, you should consider asking them to remove it. There is a long list of commissioned salespeople who were fired just before payday.
Overtime Pay for Commissioned Salespeople
Other than outside salespeople, most other commissioned salespeople are entitled to overtime pay.
In California, an employee is entitled to overtime pay whenever they work more than eight hours in a day or 40 hours in a week. Each overtime hour must be paid at the right of time and half. For example, if you normally earn $20 per hour, your overtime rate would be $30 per hour (your normal rate plus half of that).
Meal Breaks and Rest Breaks
California has strict rules require meal and rest breaks.
Meal Breaks: You are entitled to a 30 minute unpaid meal break after five hours of work.
Rest Breaks: You are entitled to a paid 10 minute rest break during the middle of each 4 hour work period.