California unpaid commissions and bonuses lawyer

When you are supposed to receive commissions or have been promised a performance bonus, these are a key part of your employment compensation. Your employer offers these incentives to encourage you to work harder than usual and to stay with the company rather than accepting offers from other employers. They serve a valuable purpose for your employer and are not a gift solely for your benefit.

But when it comes time to pay commissions and performance bonuses, employers often fail to honor their obligations. They may view these payments as discretionary when they are not. Under California law, however, commissions and performance bonuses are generally considered part of your wages, and the rules about timely payment of wages apply. That means your employer can be held liable for failing to pay these amounts in a timely fashion.

If your employer has failed to pay what they owe you, a California unpaid commissions and bonuses lawyer at Justice Law Corporation can work to uphold your legal rights and recover your unpaid earnings, as well as interest and other amounts. When failure to pay affects numerous employees, it may be feasible to address the issues in a class action lawsuit. The employee who serves as the class representative may be awarded special additional compensation for stepping forward to improve the situation of others in the workplace.

Rights of Commissioned Employees in California

In California, commission wages are amounts paid to an employee who sells a product or service and who receives a percentage of the price of what they sell or an amount based on the total of goods or services sold. For instance, an employee at an office furniture company might earn 30% of the price of a suite of office furniture when they close a sale. Some commissioned employees receive a base salary plus commissions, while others depend entirely on commissions for their livelihood.

Section 204 of the California Labor Code specifies that commissions, like most other wages, must be paid at least twice each month. In addition, Section 2751 requires employers who plan to pay employees on a commission basis to enter into a written contract with the employee that explains the method for calculating and paying commissions, as well as any deductions that will be made. If an employer pays an advance on commissions (known as a “draw”), the agreement should specify whether the employee is obligated to repay any amounts that are not ultimately earned in commissions. If the agreement is silent on the issue and there is a dispute over a draw, the amount of the draw will generally be treated as regular wages.

Certain payments that employers may refer to as commissions are not actually treated as commissions under the law. These include productivity bonuses paid to retail clerks on a short-term basis, temporary incentive payments that can increase but not decrease an employee’s contractual wage, and most bonus and profit-sharing plans.

Employee Rights Regarding Bonuses

Bonuses can be treated differently under the law depending on whether they are considered discretionary or non-discretionary. Another way to view the difference is to consider whether a bonus is earned or unearned.

When a bonus is not earned, it is offered at the employer’s discretion. It is paid not on the basis of specific criteria or performance. Most holiday bonuses are discretionary. Even if they have been a long-standing tradition expected each year, they are paid at the employer’s discretion rather than as a right earned by the employee. The same is true for bonuses offered when a company has a successful year. The decision on whether to offer the bonus and how much to offer is entirely within the employer’s discretion. They are not obligated to pay this type of bonus.

On the other hand, a bonus is not discretionary, and California law gives employees specific rights regarding its receipt. A non-discretionary bonus is a form of incentive compensation that an employer promises to pay when an employee meets a particular goal. There must be a specific agreement between the employer and the employee regarding the timing of the bonus and its calculation. The agreement may be part of a collective bargaining agreement, part of company policies announced to employees, or formalized in some other way. Because these bonuses are treated as earned compensation, employers are obligated to pay them in a timely manner; if they do not, the employee has the right to take legal action to recover the amounts owed, plus interest.

FAQs About Unpaid Commissions and Bonuses in California

The requirements of California wage and hour laws can be challenging to understand because there are so many exceptions and nuances in interpretation. Employees often come to us with questions about their rights regarding bonuses that never materialized or commissions that were withheld. Here we provide general information as a reference point, but if you contact us directly, we can provide answers specific to your situation.

What Deductions Can My Employer Make from Commission Payments Under the Law?

Employers are allowed to deduct payroll taxes and other approved deductions commonly taken from employees’ wages, such as insurance premiums and contributions to retirement plans. 

Complexity arises when employers seek to take additional deductions from commissions, such as when products are returned by customers, an employee damages products, or an employee offers incentives to secure a sale. Generally, an employer must have a written agreement to make many of these deductions, and they must have documentation of the monetary loss. If an employee’s dishonest act or negligence has caused losses to an employer, the employer also may be able to deduct amounts from commissions or other wages. 

If an employer wrongfully deducts amounts, the employee is eligible to have them returned with interest. Because these situations can be so complex and dependent on the specific facts involved, it is necessary to speak with a California unpaid commissions and bonuses lawyer directly to get a complete answer about permissible deductions.

Are Salespeople Covered by Overtime and Minimum Wage Laws in California?

The majority of sales jobs in California are not exempt from wage and hour laws that require employers to comply with minimum wage, overtime, payment timing, rest breaks, off-the-clock work, and other protections. If an employee is classified as an “outside salesperson,” they may be exempt from the requirements. To be exempt, an employee must spend 51% or more of their time selling in a location that is not their normal work site. If that employee works from home, their home is the regular work site, so time there doesn’t count as “outside.” If your employer is not paying overtime or ignoring other employee protections, and you believe you have been improperly classified as exempt from the rules because of your sales position, it is a good idea to review the circumstances with a knowledgeable attorney.

Does My Employer Have to Pay Commissions or Bonuses if I Quit or Get Fired?

This is another issue that can be very complex. Generally, under Section 201 of the California Labor Code, if an employer terminates the employment relationship or you give at least 72 hours’ notice before resigning from your position, your employer must pay earned wages on your last day. Ordinarily, that would include earned bonuses and commissions. But some commissions and bonuses may not yet be considered “earned” at the time of termination, and that’s where the situation gets complicated.

In many cases, a written agreement will specify the conditions that must be satisfied for a commission or bonus to be earned, as well as what happens at the end of the employment relationship. For instance, an agreement may specify that the employee forfeits commissions or bonuses in certain situations. Moreover, the employer may be allowed time to calculate commissions or provide for sales that are still pending at the time employment ends.

Does My Commission or Bonus Count Toward My Overtime Pay Rate?

Overtime requirements in California provide that nonexempt employees must be paid an overtime rate equal to their “regular rate of pay” multiplied by 1.5. This term has been interpreted to include all non-discretionary amounts owed, including earned bonuses and commissions. However, specific amounts described above, such as temporary incentives or traditional discretionary bonuses, may not need to be included when calculating the overtime rate.

What Rights Do I Have if I Haven’t Received My Full Bonus or Commission?

Employees who have not been adequately paid the commissions or bonuses owed as non-discretionary compensation have the right to seek amounts that have been wrongfully withheld, including interests and penalties. These deficiencies can be addressed in a number of ways, from negotiating through an experienced California unpaid commissions and bonuses lawyer to filing an administrative complaint to taking action in court. An experienced attorney could review the options and assist with recovering unpaid amounts and other relief.

Justice Law Corporation Fights for Employees’ Commissions, Bonuses, and Other Unpaid Wages

Sometimes, employees rely on their commissions and bonuses to meet daily expenses. Other times, these amounts are used to build up an employee’s retirement portfolio or other resources. Regardless of whether you need these payments immediately, however, the fact is that when you have earned these amounts, your employer should pay them.

If your employer has wrongfully withheld commissions or bonuses or made inappropriate deductions, it’s time to talk to a California unpaid commissions and bonuses lawyer at Justice Law Corporation about the most effective way to recover what you are owed. For a free consultation, just call us at 818-230-7502 or contact us online now.