At least twice per month.
In California, nearly all employers have to pay commission-based earnings at least twice every month. They typically have to be paid in the first pay period they can be calculated. If the employee has left the company, commission has to be paid immediately. The details should be outlined in the sales commission agreement.
Almost all employers are legally required to pay commission-based earnings at least twice during each calendar month.[1]
The only exception to this rule is for commissioned car salespeople. Commissions paid by vehicle dealers that are licensed by the Department of Motor Vehicles only have to pay their sales employees their commission wages once per calendar month.[2]
State labor laws do not require that commission payments be made on specific days. Those payment details can be scheduled in the sales commission agreement. Commission is often paid on the company’s regular paydays, though.
The payment of wages is not due, however, until they are “earned.” The California Division of Labor Standards Enforcement (DLSE) has said that commission is not “earned” until it can reasonably be calculated.[3] The commission agreement will detail how sales commissions are calculated. Once the commission can be calculated, it is earned. Once it has been earned, it has to be paid to the employee during that pay period.[4]
What are sales commissions?
Commissions are a form of wage in California.[5] They compensate a worker for specific services that they provided over the course of a sale of a product or a service. The amount of the commission payments are proportional to the value of the sale.[6]
This means that only employees who are involved in a sale or in a sales-related activity will earn commission wages.[7]
The specific way that commissions are calculated will depend on the sales commission agreement.
What is a commission agreement?
A commission agreement is a written contract between the employer and an employee. It is often a part of the employment contract, and sets out the terms of the worker’s commission pay and the requirements that need to be met before it will be paid. The agreement will also describe how the commission basis will be calculated.[8]
Under California law, the commission plan must be in writing whenever the employee’s compensation is to involve commission payments, even if the worker is also paid hourly wages.[9] The agreement also cannot stipulate payment terms that do not comply with specific labor code sections or California employment law, including minimum wage requirements for non-exempt workers.[10]
Changes to the agreement can only be made if the employee agrees to them. However, the employer can require the employee to accept the changes in order to keep his or her job. The new terms of the commission agreement, though, cannot alter the commission payments that the employee has already earned.
What about unpaid commissions after termination?
Whether an employee can receive commission wages after they have been terminated is a matter for the commission agreement.
Many employers include forfeiture provisions in their sales commission agreements. These provisions require commissioned employees to be currently employed in order to receive payment of commissions. Under these contract provisions, if the employee quits or is fired or terminated, they forfeit their right to receive their unpaid commission.[11]
In California, courts have split over whether these forfeiture provisions are unconscionable or not.[12] Some have found that they violate public policy. Others enforce them as a part of the employment contract.
If there is no forfeiture provision in the written agreement, earned commissions and other unpaid wages are due on the employee’s last day and must be paid immediately with the worker’s final wages.[13]
If the employer’s failure to pay a commission after the worker’s termination was willful, they may have to pay wages for up to 30 days after the payment was due.[14]
In California, wages are not due until they are earned.
What happens if the employer fails to pay commissions on time?
If the employer fails to pay commission wages on time, they can face a wage and hour lawsuit.
If the employer’s failure was willful, they may have to pay additional penalties, including attorney’s fees and a waiting time penalty.
If there was a course of conduct and numerous workers have not been paid their commission on time, it can lead to a class action.
For more discussion, see our article on commission-based pay laws.
[1] California Labor Code 204(a) LAB.
[2] California Labor Code 204.1 LAB.
[3] DLSE Opinion Letter 2002.12.09-2 (December 9, 2002).
[4] See California Labor Code 204(a) LAB and Sciborski v. Pacific Bell Directory, 205 Cal.App.4th 1152 (2012).
[5] California Labor Code 200. See also Sciborski v. Pacific Bell Directory, 205 Cal.App.4th 1152 (2012).
[6] California Labor Code 204.1 LAB.
[7] Muldrow v. Surrex Solutions Corp., 208 Cal.App.4th 1381 (2012).
[8] California Labor Code 2751 LAB.
[9] California Labor Code 2751 LAB.
[10] 8 California Code of Regulations 11040(4)(B).
[11] See e.g., Schachter v. Citigroup, Inc., 47 Cal.4th (2009).
[12] Compare Ellis v. McKinnon Broadcasting Co., 18 Cal.App.4th 1796 (1993) (California’s Fourth District called a forfeiture clause “unconscionable”) with Koehl v. Verio, Inc., 142 Cal.App.4th 749 (2006) (employee signed the commission agreement, with its forfeiture provision, so it was not unconscionable).
[13] California Labor Code 201(a) LAB.
