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Warning: Commission Plans Must be in Writing

Many companies employ commissioned sales persons, who are employed in inside or outside sales positions and whose compensation is wholly or partially based upon earned commissions.  In New York State, such employees must be provided with a written commission agreement signed by the parties. The agreement must set forth, among other things (1) the calculation for commissions; (2) a description of any salary or hourly rate earned; (3) a description of the draw, if any; (4) when commissions are earned; (5) when commissions are paid; and (6) what happens upon termination of employment.  This regulation is in response to issues which commonly arise when there is no written agreement, such as disputes regarding the time when commissions are earned or vested, and what happens to unpaid commissions at the time of termination.  Without a commission agreement that clearly sets forth the arrangement the parties agree to, these disputes are likely to be resolved against the company if litigation occurs.  For instance, many employers assume they do not have to pay out commissions following an employee’s termination.  However, without a written agreement stating otherwise, your company will be on the hook for commission payments months after an individual leaves the company.  We recommend that you review your workforce and identify those commissioned employees who should be subject to written agreements.

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