For many New York employees, sales commission is an important part of earning a living.
Unfortunately, commissions are also a common source of disputes between employees and employers.
Salespeople across industries are often not aware of the rights they have when there’s a disagreement over when, how, and how much commission they’re owed.
Fortunately, New York law protects employees who depend on commission as part of their yearly compensation. These employees have a legal right to full and timely payment of the funds they’ve earned.
This page will walk through what New York state law has to say about sales commission, address some and common questions that employees have about their rights to compensation.
We will also describe how an employment lawyer can help you handle some of the employer disputes that tend to arise around commission payments.
If you have questions, please contact us online or call 347-492-1904.
Jump to Section hideCommission is a form of compensation paid to an employee whose primary role is to make sales on behalf of an employer.
This is compensation specifically meant for the person who facilitates the sale of a product or service — as opposed to payment earned by making a product or performing a service.
Sales commission is usually calculated either as a percentage of the value of an item or service sold, or else based on the overall amount of sales an employee makes.
For example, a sales executive at a cloud-computing software company might earn 20% of every $100,000 in revenue they generate in sales.
For some employees, earned commission comes on top of an hourly wage or salary. But for “commission only” workers, it’s the entire source of their compensation.
In either case, New York state law requires that employers who pay workers on a sales commission basis set out the terms of the payment in a written agreement.
This agreement must include some critical pieces of information:
Both the salesperson and the employer must sign the agreement. The employer is also supposed to keep a record of this agreement on file for as long as a given salesperson works with them, as well as up to three years after they leave the company.
According to New York state law, as soon as a commission is “earned,” it’s part of an employee’s legally entitled compensation.
When this happens, a commission is treated by the law as an employee’s wage, i.e. earnings “for labor or services rendered.”
What makes a commission “earned”? It depends on the language of the commission agreement. The commission agreement should specify what must happen for a sale to be effectively complete, such that the salesperson is entitled to payment for their work.
What these conditions look like could vary, though, depending on the industry or type of sales involved. For instance, a commission could become earned when:
When this happens, the commission officially becomes an employee’s wages, and they’re entitled by law to receive them within five days of “earning.”
In general, employers are not allowed to withhold or deduct any part of employees’ wages — i.e. earned commission — unless they’re allowed or required to do so by law (e.g., taxes, insurance, union dues).
Commissions that have not yet been earned are a little different, though. Employers are legally allowed to make adjustments or apply certain charges to unearned commissions, if it’s acceptable under the terms of the written commission agreement.
For instance, it’s common for employers to include deductions for certain costs incurred in closing the sale, like shipping or free products offered as incentives to buy.
But any of these potential situations must be clearly outlined in the written commission agreement. If they’re not, and your employer is making deductions you didn’t agree to, they’re technically withholding wages, which is a form of wage theft.
Generally, sales workers receiving commission in New York are entitled to minimum wage and overtime protections under the Fair Labor Standards Act, unless they are considered “exempt” under one of the stated legal exceptions.
One scenario when this could arise is if an employee earns commission specifically as an “outside salesperson.” This is an employee whose sales work primarily and regularly occurs away from their employer’s place of business.
For example, an insurance salesperson who travels door-to-door to clients’ homes or offices. To qualify for this exception, it’s not enough for a salesperson to be simply working outside of their employer’s main office, or even in their own home.
For the outside salesperson exemption to apply, the employee must be specifically pursuing sales-related tasks outside of an office (or home office) setting, including soliciting new business, meeting with customers, or conducting promotional work.
Commissioned salespersons who are not “outside salespersons” can be entitled to overtime, and their commission should be included in the calculation of the regular overtime rate for a given pay period.
Additionally, if a non-exempt commissioned salesperson does not earn enough commission to reach the minimum wage rate in a pay period, their employer must make up the difference. This is often done with a “draw,” a type of advance payment to a commissioned employee.
A draw acts as a credit against future commission earnings, usually settled at regular intervals that are set out in the commission agreement.
For example, an agreement might include a provision requiring an employee to pay back any difference between past draws and earned commission in a designated period, e.g. every 90 days.
Draws can also only be recouped from future commission amounts, not from any other forms of compensation or benefit.
Since draws are made from future commissions, salespeople who leave their company can’t be required to reconcile them after they leave their company — unless their commission agreement specifically says otherwise.
If your commission agreement doesn’t have specific language mandating the repayment of draws over a set period of time, your employer may not be able to require you to pay those funds back.
The issue of commission payments left unpaid after an individual leaves the company is one of the most common disputes between sales employees and employers.
Legally, a company can’t withhold any earned wages from an employee, even if they’re no longer employed there. This is the case whether someone has been terminated or has chosen to leave their job willingly.
But the obligation to pay — or right to receive — a payment becomes complicated when it’s not clear whether or not the commission is “earned.”
This often happens when a commission agreement is ambiguous about the terms of payment, or if there’s no written agreement at all.
In New York, if a commission agreement doesn’t include a clear definition of what makes a payment “earned,” the law defers to the conditions that have triggered payments in past dealings between the employer and the salesperson.
When there’s no history of past payments to refer to, New York law usually considers a commission earned at the moment a salesperson finds a ready, willing, and able buyer.
Ultimately, how these situations turn out will depend on the specific circumstances of the case. Whenever there’s a disagreement over outstanding commission payments, it’s a good idea to contact an employment lawyer.
Whether or not you have a clear commission agreement to refer to, an attorney who specializes in labor disputes is in the best position to assess your situation and advise you on how to seek recovery for that compensation.
The best way to protect yourself is to work for a company that has a reasonable, written commission plan. Ideally, the commission agreement will clearly articulate when your commissions are earned.
As much as possible, try to avoid companies that impose unreasonable payment terms.
Ask for a copy of the written commission agreement, and read it closely so that you understand how it works and when you will be paid. Next, keep records of all of your sales transactions and pay stubs so that you have documentation showing how you are usually paid.
Under New York law, you can request a “statement of earnings” from your employer, which lists all the funds they’ve paid you so far, as well as those pending but unpaid.
If you have a disagreement with your employer about a commission, keep careful records of all communication with your company and with the buyer.
In general, commission disputes are much easier to resolve if the facts can be established with documentation and clear evidence.
Since it can be difficult and intimidating for employees to resolve these issues themselves, it’s best to consult with an employment attorney in the event of a commission dispute.
A lawyer who specializes in New York employment law is best positioned to assess your circumstances, advise you on documentation and evidence needed, and support you in the process of getting legal restitution.
Ottinger Employment Lawyers has helped hundreds of New York employees navigate commission disputes and successfully recover the compensation they deserve.
If you’re a New York salesperson frustrated with unpaid commission, contact us online or call 347-492-1904 today to speak with an attorney.
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