Pub. 1 2013 Issue 3

12 San Diego Dealer New Rules for Commission-Paid Employees E ffective january 1, 2013, a new California law requires that employees entering into employment agreements which involve compensation, even in part, on a “commission” basis must be provided a written contract which sets forth the method by which the commission is computed and paid. Employers must provide the employee with a signed copy of the commis- sion agreement and obtain a signed acknowl- edgment of receipt of the copy. This law does not change, and should not be confused with, theWage Theft Prevention Act (WTPA), a law in effect since January 1, 2012, which requires that employers provide non-exempt employees with a notice regarding the essential terms of their employment, including a section stating the basis for their compensation, e.g. whether it’s payment by the hour, piece, commission, or other basis. But, far more than a summary notice requirement, the new law, (referred to as AB1396) focuses only on enhanced requirements for agreements involving commissions. Does It Apply To Your Employees? Not all payments labeled as “commissions” are covered by this new law. Rather, the payment, by whatever label, must fall within California’s legal definition for a commission. This is found in the Labor Code and includes any payment for services rendered in the sale of the employer’s goods or services that is based“proportionately”on the amount or value of the sale, whether the agreement involves units sold, the sales price, or on the profit made on the sale. Although AB1396 lacks detailed guidance, it does explain that short- termproductivity bonuses paid to retail clerks or other similarly employed individuals do not qualify as“commissions.”Temporary, variable-incentive payments (sometimes known as“spiffs”) that increase, but do not decrease, payment due to an employee do not meet the definition. Finally, bonus and profit-sharing plans are not covered unless they involve payment to the employee of a fixed percentage of sales or profits for work performed. Bringing Your Commission Agreements Into Compliance It is not clear whether AB1396 requires employers to implement written agreements with employees currently having only unwritten or verbal commission agreements, or whether employers who use written commission agreements, but have no signed receipts for them, must obtain receipts by January 1. The more cautious approach is to obtain conforming written agreements and receipts by the first of the year. Of course, if the terms of a commission agreement are changed in any way after January 1, 2013, this law’s requirements will have to be met. The Basic Requirements For Your Commission Agreements Whether commission plans are simple or complex, it will be impor- tant to make sure all essential elements of the commission plan are By Chris Hoffmann Regional Managing Partner, Fisher & Phillips