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What the law regarding timely pay on earned services commissions? California

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  • What the law regarding timely pay on earned services commissions? California

    My company has recently gone through some changes and I was singled out for a hefty reduction in salary. As a senior software consultant, my work most involves being a project manager, training, software design, and consulting - all professional services types of work.

    I was offered a 'trial' commission by the President of the US division. Basically I will make 50% on every hour I bill the customer. This is independent from and in addition to my low salary. I became the lowest salaried person in the entire US division but with potential to make a lot more if I bill a lot of hours.

    July was the first month, and our accounting department just calculated and invoiced for the month of July. When I inquired in mid-July about the commission payment schedule, no one gave me any answer. Now that we are almost in mid-August, I inquired again and got a from our CFO. He replied that I would get 75% of my commission now and the remainder pending payment from the customers.

    Questions:
    1. Since my work for July all completed, aren't my commission considered earned and payable? I am not selling a product or a project, which may result in a difference between the initial sale price of a product/project and the final billing invoice. My work has to do actual hours worked.
    2. Can the company withhold payment of wages for a long period of time? I read somewhere that commissions/wages must be paid on a timely basis if calculable. When monthly invoices go out to the customers, my commission should be calculated and payable, right? We have an account executive (lives in PA) who gets the commission on a quarterly basis on actual payment made by the customer. He doesn't actually render any service: he sells my time to do an upgrade with a customer and I do the work.
    3. Can the company withold my remaining 25% of the commission pending payment from the customer? If the customer wait for more than the required net 30 or go bankrupt, doesn't the company still must pay me for my completed work?

    I am having a hard time locating laws regarding this area since most topics are about people leaving a job and commission owed.

    Any assistance from the community would be much appreciated.
    Thanks,
    JHinOC
    Last edited by JHinOC; 08-13-2010, 04:38 PM.

  • #2
    Just to be sure, are you legally an employee? Taxes deduction from payments and W-2 received at year end?

    Assuming you are an employee, then you are subject to CA laws on employees. Ignore the commissions for the moment. Unless you are a door to door salesperson who spends the majority of your time outside of the office selling directly to customers, then you have certain base payment requirements. I understand that you said you are paid a salary, but is not legally very meaningful.
    - If you are non-exempt, then you must be paid at least $8/hr, and must be paid overtime if applicable.
    - If you are exempt, then (mostly likely) you must be paid a salary of at least $640/week AND match some very specific requirements. There are a number of different Exempt classifications. If your employer wants to claim that you are Exempt, then your employer basically has to pick one of the classifications then follow all rules related to that classification.
    So starting point is are you paid at least $640/week unrelated to commissions? If not, then you are almost certainly non-exempt (in CA) anyhow. You might also want to look at the Exempt classifications in the CA-DLSE manual (see below).

    Commissions are not nothing, especially in CA which has tough commission related rules, but the starting point is always to figure out exactly which set of rules your base pay is under, and make sure that those rules are being followed. Outside sales are the only employees that legally can be paid commissions only.

    Regarding when commissions are "due", that is legally complicated. Basically when "a reasonable person" could calculate the payment. Past that it is legal (and common) to make the payment contingent on the payment actually being made, meaning cash basis. CA-DLSE manual has a good chapter that discusses this.
    http://www.dir.ca.gov/dlse/Manual-Instructions.htm
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

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