Effective January 1, 2013, California’s new Labor Code section 2751 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 the commissions shall be computed and paid. The commission plan must also be signed by the employer and the employer must obtain a signed receipt from each employee.
The new law incorporates the definition of commissions from California Labor Code section 204.1, which defines commission wages 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 or value thereof.” Types of payments that are specifically excluded from this definition include:
- Short-term productivity bonuses such as are paid to retail clerks;
- Temporary, variable incentive payments that increase, but do not decrease, payments under the written commission contract; and
- Bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.