Million Dollar Commission Considerations
A recent $15.5M legal settlement with Oracle highlights the risks of mismanaging commission pay, especially in states like California. The lawsuit accused Oracle of unclear commission terms, reducing commissions after the fact, and failing to issue proper contracts or pay earned commissions on time.
Key takeaways for your business:
Always use clear, written commission agreements signed at the start of employment or whenever terms change.
Be transparent: spell out how commissions are earned, calculated, and paid.
Never make retroactive changes to commissions without advance notice.
Pay commissions on time. They’re considered earned wages under the law and protected accordingly.
Provide accurate pay stubs that reflect commission details.
Know your state-specific rules: Some states, like California, have stricter requirements.
Audit your commission plans regularly to avoid costly errors and liability.
Use expert resources: consult an employment attorney to review terms and accounting experts for accurate payroll and tax implications.
Related: Bonus vs. Commission – Know the Difference
Commissions: Tied to performance or sales, and once the conditions for earning them are met, they are considered earned wages.
Because they are wages, employers are legally required to pay them in a timely manner under federal and state laws (e.g., California Labor Code).
Failure to pay commissions properly can lead to wage claims, penalties, and lawsuits.
Bonuses: Many bonuses are discretionary, meaning the employer decides if, when, and how much to pay. Example: A holiday bonus with no prior promise or formula.
Discretionary bonuses are not considered wages until awarded, so they’re less strictly regulated.
Non-discretionary bonuses, however (e.g., promised for hitting a target), are considered wages and must follow wage laws just like commissions.
Final Thoughts: As uncertainty in the economy grows, more and more employers are exploring incentive-based pay for performance vs standard annual pay increases. Commission pay can be a great motivator, but only when it’s planned, documented, and paid correctly.
References: https://www.hrdive.com/news/oracle-settles-california-paga-pay-dispute/745197/?utm
Link to a free article on the topic.