Sales commission based on amount client has paid rather than total sale
Question: We have a sales executive who earns a flat annual salary plus a commission based on total sales figures, which is paid out quarterly. The quarterly calculation is based not on the total sales amount but what the client has paid at that point in relation to the total sales figure. For example, on a sale of $50,000, if the client has only paid $10,000 of the total, the commission in that quarter is based on the $10,000. The employment contract only outlines simple remuneration such as total amount and payday. Is this method of commission calculation common or even legal?
Answer: Employment standards legislation in each Canadian jurisdiction requires an employer to pay wages, which includes earned commissions, within a prescribed period of time. In British Columbia, for example, the Employment Standards Act requires an employer to pay an employee at least semi-monthly and within eight days after the end of the pay period “all wages earned by the employee in a pay period.”
The point when commissions become earned and payable depends on the terms of the contract between the employer and the employee. For example, the parties may agree commissions are payable at the time the employee makes the sale, at the time the customer is invoiced, at the time the goods are delivered and when the customer pays. Where the contract is silent, the employer’s past practice regarding payment of commissions to the employee and co-workers may be reviewed to determine the terms of the parties’ agreement.
In order to avoid unexpected liability, employers should take care to ensure commission terms are clearly spelled out in employment contracts and policies. The contract or policy should state such considerations as: the commission rate, what it’s calculated on, when commissions are earned and payable and what happens when the employee goes on vacation.
Colin G.M. Gibson is a partner with Harris & Company in Vancouver. He can be reached at [email protected] or (604) 891-2212.
Answer: Employment standards legislation in each Canadian jurisdiction requires an employer to pay wages, which includes earned commissions, within a prescribed period of time. In British Columbia, for example, the Employment Standards Act requires an employer to pay an employee at least semi-monthly and within eight days after the end of the pay period “all wages earned by the employee in a pay period.”
The point when commissions become earned and payable depends on the terms of the contract between the employer and the employee. For example, the parties may agree commissions are payable at the time the employee makes the sale, at the time the customer is invoiced, at the time the goods are delivered and when the customer pays. Where the contract is silent, the employer’s past practice regarding payment of commissions to the employee and co-workers may be reviewed to determine the terms of the parties’ agreement.
In order to avoid unexpected liability, employers should take care to ensure commission terms are clearly spelled out in employment contracts and policies. The contract or policy should state such considerations as: the commission rate, what it’s calculated on, when commissions are earned and payable and what happens when the employee goes on vacation.
Colin G.M. Gibson is a partner with Harris & Company in Vancouver. He can be reached at [email protected] or (604) 891-2212.
