Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

By Stacey E. James

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.

• Print
• Comments
• Trackbacks
• Share Link

Employers who conduct business in Maryland recently received good news when the Maryland court of appeals overturned the lower court decision in Catalyst Health Solutions, Inc. v. Magill (pdf) and held that unvested stock options are not wages under the Maryland Wage Payment and Collection law. The court reasoned that the unvested stock options at issue were not wages because the employee “did not fulfill the continued service condition,” as set forth in the stock option agreement.

• Print
• Trackbacks
• Share Link

Many employers do not know that paying a non-discretionary bonus to non-exempt employees will require the payment of additional overtime. The California Court of Appeal’s decision in Marin v. Costco Wholesale Corporation is a good reminder of the need to pay overtime on such bonuses and of the fact that the method for calculating overtime on a bonus depends upon whether it qualifies as a “production bonus” or a “flat rate bonus.”

As a general matter, the payment of a non-discretionary bonus (one that is not discretionary in either the fact that it will be paid or in the formula for calculating it) to non-exempt employees triggers an additional overtime obligation because it retroactively increases the regular rate of pay for the employee receiving the bonus for the time period covered by the bonus. A non-exempt employee is entitled to be paid overtime at 1.5 times (or double, in some cases) the regular rate of pay for each overtime hour worked. With some specific exceptions not relevant here, the regular rate of pay for overtime purposes includes all compensation earned during the workweek. Thus, an employee who is paid a quarterly bonus has received additional compensation that was not included in the regular rate of pay when he or she was paid overtime for hours worked during the quarter at issue. An employer is required to resolve this issue by calculating a “regular rate” of pay on the bonus itself and then paying some portion of that regular bonus rate for each overtime hour worked during the period in which the bonus was earned. The precise method for calculating the overtime due on a bonus depends upon whether the amount of an employee’s bonus increases with each hour worked (in which case it is a “production bonus”) or whether the amount of the bonus is fixed independent of the hours worked (in which case it is a “flat rate bonus”).

• Print
• Trackbacks
• Share Link