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Terminating a Commission Employee Ohio

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  • Terminating a Commission Employee Ohio

    How do you handle terminating an employee who is paid on a 100% commission basis? I'm interested in both what's legally and morally required and how to coordinate reporting final pay to unemployment.

    We want to terminate an underperforming salesman. The way our pay for salesmen is structured is this (and I have never liked it, but it's been in place since long before I got here).

    1) Salesmen receive a biweekly "salary" that is really just a draw against their quarterly commission check.
    2) Salesmen are paid a percentage of the gross margin on their invoiced sales, less their expenses, including the biweekly salary.
    3) Commission checks are released approximately 45 days after the end of the quarter the sale was billed and we are in an industry where orders have long lead times.

    This guy has orders already booked that won't ship and bill until late November, and then his normal commission check for those sales would come in February. Obviously we don't want to still be paying the guy in February. Has anyone been through this? How did you accomplish it from an administrative perspective?
    Last edited by ferretrick; 10-23-2015, 08:52 AM.

  • #2
    What does the employee sell? And where/how do they sell it?

    Technically under FLSA, the only legal type of "commission only" employees are those who qualify under the Outside Sales exception. Otherwise we are talking employees subject to MW, OT or both. Not legally "commission only", although some employers feel that "commission only" are magic words that somehow change the legal situation.

    Is there a contract? Contracts cannot make labor law go away but can add additional requirements.

    Normal employment is at will and any generic employee can be terminated at will. The real question is whether or not there is legally deferred compensation due the employee. If this is legally a "commission only" employee under FLSA, then they have an excellent case for being due this compensation. If they are in fact just some vanilla non-exempt employee subject to normal MW/OT requirements and those requirements were meet, then their chances for extra compensation just got sucky, absent a contract law remedy.

    And no offense but this is the sort of question which should be resolved PRIOR to any work being done. If the situation is in any way unclear, the employee should go to small claims court and play Wheel of Fortune.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)


    • #3
      I completely agree, but you know the drill...small family company, never terminated anybody before, blah, blah, blah.

      I am confident the guy meets the Outside Sales Exemption. There is no contract in play.


      • #4
        OK. Assuming that the FLSA "outside sales" exception is in play, then the FLSA MW/OT requirements are off the table.

        HOWEVER there are very explicit common law requirements that this class of employee has a legal expectation of commissions paid. Termination is not a big deal normally, there is no common law expectation of never being fired, but the legal burden is on the employer to show that all commissions earned while working are paid and some clause that "terminated employees get nothing" is not legal under common law. Clauses making commissions contingent on the customer actually paying the invoice are legal if done correctly, as are clauses deferring payment until/unless payment is received,
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)