Basic Considerations When Paying Employees Commission

Employers in Texas who pay employees commissions need to consider a variety of issues to ensure that they are in compliance with state and federal law. For example, if you pay non-exempt employees commissions, generally speaking, these employees must be treated just as any other non-exempt employee. As such, Texas employment laws and federal laws like the Fair Labor Standards Act (FLSA) will apply. Beyond this, what other factors should be considered? The Texas Workforce Commission (TWC) outlines some of the key issues for employers in the state who pay employees commissions.

Employees Paid Commission are Covered by Minimum Wage Laws and Overtime Laws

If you have employees who are non-exempt and are paid by commission, remember that these employees are covered by minimum wage laws and overtime laws. Accordingly, you will need to ensure that the employee is paid at least the minimum wage for all hours worked regardless of their commission earnings. And because their weekly earned commissions will fluctuate, this means their regular pay rate will also change for purposes of calculating and paying weekly overtime wages.

Calculation of overtime pay becomes more complicated for commissioned employees when commissions cannot be tied to specific time periods.  More information on calculating overtime pay in these situations can be found in the Code of Federal Regulations.  Consult an employment law attorney if you need more assistance with the legalities of how commissions affect how you calculate overtime pay for your non-exempt, commissioned employees.

Employees May Be Owed Earned Commissions

Employees who work on a commission basis, including employees with employment contracts, may be owed earned commissions from past work even if your business changes its structure for providing commissions. It is necessary to keep records and have commission plans in writing. As an employer, you may still owe earned commissions even if there was no plan in writing, if your business had a practice of paying commissions in a certain manner or according to a particular structure.

Generally, commissions earned during employment must be paid to employees after separation according to Texas Payday Law.  Final pay and commissions must be paid within six calendar days of discharge (involuntary separations) or the next regularly scheduled payday (following the last day of work for voluntary resignations) unless the wage agreement or policy in place during employment provided a different timing for these payments.

Potential Conflicts Over Owed Commissions after Separation

Disputes sometimes arise between employers and former employees when there is a separation before a commission is paid.  The conflict often deals with the definition of when a commission accrues or is earned, and the extent of the duties that an employee must complete in order to complete the sale.  Many factors come into play but the most important tend to be

  • Nature of the separation – voluntary vs. involuntary
  • Type of commission plan – written vs. oral
  • Plan’s rules for how a commission is accrued
  • Required duties to earn a commission or complete a sale
  • Plan’s rules for when a commission is paid

Employers who do not pay accrued commissions after separation could be subject to breach of contract claims in some circumstances.  Therefore, it is certainly in an employer’s best interest to have an unambiguous written commission plan in place that clearly defines when a commission is accrued, the duties required to complete a sale, and when a commission is paid.

Contact Our Frisco Employment Law Attorneys Today

Whether you have questions about creating a written commission plan or you are facing a claim from an existing employee about unpaid commissions, it is wise to seek advice from an experienced Frisco employment law attorney. It is important to ensure that you are in compliance with state and federal laws concerning commissions, and that you take appropriate action when an employee raises the issue of unpaid commissions. Contact Simon Paschal PLLC for more information about how we can assist you.

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