Special Rules for Commissioned Sales People
The B.C. Employment Standards Act imposes a number of restrictions on compensation structures for commissioned sales people. Understanding them is no simple task and concentrated study of the rules is highly recommended to employers of commissioned employees.
The first thing to know is that the Act distinguishes between two categories of commissioned sales people. So-called “high end” commissioned salespeople (selling or leasing automobiles or trucks, heavy industrial or agricultural equipment, recreational vehicles or campers, and sailing or motor vessels) are treated differently than other commissioned salespersons. Depending upon the specific goods sold or leased by the “high end” commissioned salesperson, certain aspects of the minimum wage, hours of work and overtime, and statutory holiday requirements of the Act will not apply.
The balance of this article deals exclusively with non-high-end commissioned salespersons.
Employees paid partly or entirely by commissions are excluded from the overtime and statutory holiday provisions in the Act. This, however, is only the case if the total wages paid in a pay period exceed what would have been payable under those provisions using the greater of the employees base rate or the minimum wage under the Act. The employer must perform a calculation for each pay period to determine whether the salesperson can be excluded from those provisions.
Commissions are treated under the Act as a type of incentive based pay in the form of a fee or percentage paid to a salesperson for a transaction including, but not limited to, the selling or leasing of goods. Commissions do not include flat rate or piece rate incentive based wages.
It is worth noting that the Act’s definition of “wages” includes commissions. So, unless specifically excluded elsewhere in the Act, commission earnings must be taken into account for the purpose of other wage calculations (such as, for example, vacation pay and compensation for length of service).
Employers of commissioned salespeople must not pass on to the employee any of the costs of doing business. This means the costs of sales such as samples, sales kits, and displays must not be deducted from the commissioned employee’s wages.
Commissioned sales people are entitled to be paid at least the minimum wage for all hours worked in each pay period. The key to a general understanding of how the Act treats commission pay arrangements is to focus on each pay period separately and on the date when the commissions are paid (rather than earned). These two concepts underlie the way the Employment Standards Branch addresses three typical commission-related arrangements: offsets; claw backs; and advances.
Commissions earned in one pay period cannot be used to offset earnings during another pay period (when no commissions were earned or the commissions earned were less than the minimum wage). Similarly, wages earned in one pay period cannot be deducted from commissions earned in a subsequent pay period.
For example, an employee earning no commissions during several successive pay periods is entitled to be paid at least the minimum wage for hours worked during those periods. If the employee earns commissions in a subsequent pay period, those commissions cannot be reduced by the minimum wages paid to the employee in the prior periods. This effectively prevents the employer from treating the prior minimum wage payments as a “draw” against future commission earnings.
Some commission payment arrangements provide the employer with the ability to claw back payments if a sale is cancelled after the commission was paid to the employee. This arrangement is permissible but the claw back must not result in the employee receiving less than the minimum wage for any pay period.
Employers and commissioned employees sometimes have an arrangement whereby the employee receives, in each pay period, an advance (in excess of the minimum wage) towards anticipated commissions. If commissions earned in a pay period are less than the advance, the employee will be in a deficit position heading into the next pay period.
This arrangement is permissible but only if the payments made in any pay period do not fall below the minimum wage. And, the employer runs the risk that the employment will come to an end with the employee in a deficit position. Unless a proper assignment of wages has been entered into which contemplates this situation, the employer may not be able to recover the overpayment.
There is much more to learn about paying commissioned sales people under the Act. Reference should be made to the excellent “Factsheets” on the website maintained by the B.C. Employment Standards Branch, at http://www.labour.gov.bc.ca/esb.