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The importance of a contract for commission-based employees

The Fair Labor Standards Act ensures that employers follow minimum wage and overtime standards. However, the act does not have requirements for commission payments.

Because of this, issues over commissioned based wages are generally a little more complicated. As a sales professional, it is important that your employment contract has clear terms regarding your commission. These are a few of the important aspects that a contract should define.

When is commission owed?

A compensation contract should clearly define when a sales associate earns commission. For example, some employers will award commission once a sale is made. Other employers will only award commissions after the buyer actually receives the product.

Timing is important when it comes to commissions. For example, an employer that only pays commissions for sales made above a quota should define the length of each quota period. This can help a commission schedule remain crystal clear for both parties.

When is commission paid?

Perhaps more important than an employer owing you commission, is an employer actually paying them to you. According to the Michigan Sales Representative Act (SRCA), if there is no specified due date in a contract, then the history of the two parties will determine when commissions are due. If there is no history, then industry standards will dictate the payment of commissions.

However, while the SRCA provides certain protections, it is still better—and more convenient—for a contract to clearly define a routine payment schedule.

Contracts and disputes

Because of the complexity, wages based on commission can be the subject of disputes. If you feel that an employer has violated your agreement, or that your contract violates the SRCA, you should contact an employment lawyer who has experience dealing with commission disputes.

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