Many employees and employers are not aware of their obligation to set a commission plan in writing. Effective California Labor Code section 2751 (enacted back in 2013) requires employers to provide written commission plan agreements to all employees who perform services in California and whose compensation involves commissions. The agreement must explain the method by which commissions shall be computed and paid. The commission plan must also be signed by the employer and the employer must obtain a sign receipt from each employee.
This law incorporates the definition of commissions from California Labor Code section 204.1 which defines commissions as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount of value thereof." The types of payments excluded from this definition are productivity bonuses, temporary incentive payments and bonus and profit sharing plans, unless there has been an offer by the employer to pay fixed percentage of sales or profits as compensation for work to be performed.
Clearly, the purpose of this law is to reduce the chances of vagueness and misunderstanding between employers and commissioned employees regarding their compensation structure and create a binding, enforceable contract.
The video below explains a key difference between bonus payments and commission, and why this difference is important.
This law incorporates the definition of commissions from California Labor Code section 204.1 which defines commissions as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount of value thereof." The types of payments excluded from this definition are productivity bonuses, temporary incentive payments and bonus and profit sharing plans, unless there has been an offer by the employer to pay fixed percentage of sales or profits as compensation for work to be performed.
Clearly, the purpose of this law is to reduce the chances of vagueness and misunderstanding between employers and commissioned employees regarding their compensation structure and create a binding, enforceable contract.
The video below explains a key difference between bonus payments and commission, and why this difference is important.
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