Compensation

Ask the Expert: Can We Forfeit Commission Payout If Employee Doesn’t Meet Criteria?

Question: If there is an agreement in place that an employee must meet certain criteria before receiving their commission payout, and they don’t meet the criteria by the deadline, can you forfeit paying the commission? For example, the invoice/job order the employee submits has to be turned in by X amount of days otherwise the commission is forfeited. This would be for a salary exempt employee that also receives commissions. We are located in Missouri.

employee commissionAnswer from the experts at HR.BLR.com:

Thank you for your inquiry.

Commissions are generally a matter of contract and it depends on what the agreement states about when the commission is earned and payable. That being said, we would highly recommend consulting with an attorney who can review the contract and all the facts and circumstances and advise accordingly. Below I have included the laws on commissions in Missouri for your review. According to Missouri Annotated Statutes, the following laws pertain to commission sales:

§ 407.912. Commission to become due, when — termination of employment, all commissions due, when

1. When a commission becomes due shall be determined in the following manner:

(a)  The written terms of the contract between the principal and sales representative shall control;

(b)  If there is no written contract, or if the terms of the written contract do not provide when the commission becomes due, or the terms are ambiguous or unclear, the commission shall be paid when the product or service is delivered and accepted by the purchaser or the principal receives satisfaction in full;

(c)  If neither subdivision (1) nor (2) of this subsection can be used to clearly ascertain when the commission becomes due, then the commission shall be due on the date the principal accepts the order and receives satisfaction in full, unless the custom and usage prevalent in this state for the parties’ particular industry is different, in which event such custom and usage shall prevail.

2. Nothing in sections 407.911 to 407.915 shall be construed to impair a sales representative from collecting commissions on products or services ordered prior to the termination of the contract between the principal and the sales representative but delivered and accepted by the purchaser after such termination.

3. When the contract between a sales representative and a principal is terminated, all commissions then due shall be paid within thirty days of such termination. Any and all commissions which become due after the date of such termination shall be paid within thirty days of becoming due.

§ 407.913. Failure to pay sales representative commission, liability in civil action for actual damages — additional damages allowed — attorney fees and costs

Any principal who fails to timely pay the sales representative commissions earned by such sales representative shall be liable to the sales representative in a civil action for the actual damages sustained by the sales representative and an additional amount as if the sales representative were still earning commissions calculated on an annualized pro rata basis from the date of termination to the date of payment. In addition, the court may award reasonable attorney’s fees and costs to the prevailing party.

§ 407.911. Definitions

As used in sections 407.911 to 407.915, the following terms mean:

(1)  “Commission”, compensation accruing to a sales representative for payment by a principal, the rate of which is expressed as a percentage of the dollar amount of orders or sales, or as a specified amount per order or per sale;

(2)  “Principal”, a person, firm, corporation, partnership or other business entity, whether or not it has a permanent or fixed place of business in this state, and who:

(a)  Manufactures, produces, imports, provides, or distributes a product or service for sale;

(b)  Contracts with a sales representative to solicit orders for the product or service; and

(c)  Compensates the sales representative, in whole or in part, by commission;

(3)  “Sales representative”, a person, firm, corporation, partnership, or other business entity who contracts with a principal to solicit orders and who is compensated, in whole or in part, by commission, but shall not include a person, firm, corporation, partnership, or other business entity who places orders or purchases for its own account for resale.