Paying advances on
commissions and maintaining chargeback policies are legal in
story involving Investor’s Business Daily, these policies and practices must be
carefully crafted, or you could be vulnerable to a legal challenge. These
guidelines can help ensure your commission practices hold up:
1. Spell out commission
terms. Specify
in the commission agreement the prerequisites that must be met for the salesperson
to earn the commission.
2. Address chargeback
procedures. Make sure chargebacks are only on advances, not on money the employee
has already earned. Also, as the Investor’s Business Daily suit underscored, it
is risky to retain a portion of the customer’s payment for yourself if you chargeback
the entire sale amount against the salesperson’s commission.
3. Make conditions
clear. Don’t
bury an important provision in the fine print. One factor that has led courts
to uphold commission agreement terms was that the affected employees were fully
aware of what qualified as a commissionable order and when deductions would be
made from advances.
4. Get it signed. Have employees sign an
acknowledgement that they have read and understand the commission agreement.
5. Don’t deduct for
unidentified returns. Some employers wind up in hot water for spreading the cost of
merchandise returns among all salespeople when the original sale can’t be
traced back to a particular employee. This violates a Labor Code provision barring
employers from reducing an employee’s earnings for losses or shortages, except
in special cases involving dishonesty, culpable negligence, or abuse.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.