California Employers: Are Your Commission Compensation Plans in Place?

If you have employees in California working on commission, take note. As of January 1, 2013, revisions to the state’s labor code require you to have written contracts with each commissioned worker, setting forth the ways in which compensation will be computed and paid.

Three things to keep in mind when updating and drafting your commission contracts:

1. Not all payments need to be included:

“Section 2571 currently excludes two types of compensation from its requirement: (i) short-term productivity bonuses such as those paid to retail clerks; and (ii) bonus and profit-sharing plans, unless the plan provides for payment of a fixed percentage of sales or profits as compensation for work to be performed. AB 2675 adds a third exception to the written contract requirement for ‘temporary, variable incentive payments that increase, but do not decrease, payment under the written contract.’” (Bryan Cave)

2. All parties must sign off on the agreement:

“The law … requires employers to provide a signed copy of the commission contract to every employee who is a party to the agreement and to obtain a signed receipt of the contract from each employee.” (Wilson Sonsini)

3. Expired contracts remain in force until they have been replaced:

“[W]hen a contract governing commissions expires without being replaced but the employee continues work, the terms of the ‘expired’ contract will apply to commissions until the parties sign a new agreement or until the employment is terminated. (Sheppard Mullin)

The updates:

Related reading:

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