Employers commonly pay employees on a commission basis. It's a good incentive for productivity and gives the employer a win-win as the bulk of the salesperson's income is only due to income also received by the employer. But, it's also full of traps.
Here are the primary traps you, as the employer, need to be aware of:
1. Documenting the basis for deductions in commissions;
2. Changes in the commissions being agreed to by the employee;
3. Express terms on whether commissions are payable even if the employee is no longer employed with you;
4. Prerequisites to payment of commissions (i.e. checklist of duties the employee must satisfy, full-payment received from customer); and
5. Being prepared to pay commissions owed upon demand from a terminated employee.
All of these are based in statutes or common law. All of them are important. All of them need to be high on your radar on a daily basis. Today's errors don't appear for years, but will be costly if they don't get corrected promptly.
