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Payment of commissions after employment ends
  • Employers must pay terminated employees at least the minimum wage for all hours worked, but is not under FLSA law to calculate commissions for later payment.
  • The contract or agreement between employer and employee may change what a company owes.

Under the Fair Labor Standards Act (FLSA), commission payments are treated a bit differently than other forms of compensation. Effectively, the FLSA does not require paying out commissions that were not yet calculable at the time of separation. The employer must still pay at least the minimum wage for all hours worked, but need not calculate commissions for later payment.

However, many states define “commissions” as part of wages earned, and even when the amount of commissions earned cannot be determined at the time of separation, state laws may require paying out those commissions when the amount can be calculated.

Commission computation is based upon the contract or agreement between the employer and the employee. Computation frequently relies on such criteria as the date the goods are delivered to a customer, or the date payment is received. Sometimes, a commission is subject to reduction if the goods are returned. If these conditions are clearly specified in the contract or agreement, the conditions may be used in computing the payment.

Generally, if the contract is clear and there are extra duties which must be performed to complete the sale, an employee who voluntarily quits without accomplishing those tasks is not entitled to a commission. In other cases, the obligation to pay the commission depends on when it has been “earned” by the employee. Commissions on “immediate” sales (such as retail sales) are usually simple. However, some sales are not “completed” until other factors have been satisfied (e.g., the sales agent may be required to perform additional services for the customer).

Where the termination is a discharge (involuntary separation) and the employee has been prevented from completing the contract terms, the person might be able to recover all or part of the commissions. In some cases, an employee may attempt to recover a commission (perhaps by filing a wage claim) despite having failed to perform all conditions required to earn the commission. For example, the employee might claim that the timing of a termination was intended to prevent the person from collecting a large commission.

A commission is “earned” when all legal or contractual conditions have been met. Note that courts generally will not enforce unlawful or unconscionable terms and will interpret any ambiguities against the person who wrote the contract (usually the employer) in favor of the employee.

The bottom line is that a commission becomes a part of wages owed (e.g., the commission is “earned”) once the conditions outlined in the contract have been satisfied. This may involve delays for various reasons, such as waiting for receipt of payment from the customer, which may not occur until after the employment relationship has ended. However, once the contract conditions have been satisfied, the commission has been earned as must be paid as wages owed, even if the employee is no longer with the company.

Under most state laws, employers cannot deny payout of earned commissions simply because the salesperson was no longer employed on the date of computation. From a legal standpoint, denying an earned commission for that reason would be no different than refusing to provide a final paycheck simply because the individual was no longer employed on the scheduled payday.