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Why Employers Should Have Written Commission and Bonus Plans


Employers can choose to pay employees for their work in different ways, and for many employers, commissions and bonuses are a key incentive. It makes sense as a management strategy, but it’s important for employers to be aware of California’s commission and bonus laws and regulations. Without a formalized, written commission and bonus plan, you could be in legal trouble. You might have to deal with angry or confused employees.

Consult with a California employment lawyer from Wagner Zemming Christensen to avoid any commission or bonus problems. Our business law attorneys are well-versed in California’s employment regulations, so we’ll know if your arrangement complies with state regulations. We can help you resolve any disputes with your employees, including by representing you in litigation. Get an initial consultation by calling our office in Riverside, speaking to one of our online chat representatives, or filling out our contact form.

Benefits of Having Written Commission and Bonus Plans

There are several important benefits to creating written commission and bonus plans, and these benefits impact both employers and employees alike.

They include:

  • Avoiding legal trouble from state regulators- The California Labor Code requires employers to provide written notice of commission and bonus plans. Failure to provide a written plan for these payments could lead to trouble with state authorities. It’s a good idea to provide your employees with signed copies of the agreement for their own records.
  • Defining when and how commissions and bonuses accrue- Often, commissions are paid when an employee lands a customer, completes a purchase order, issues an invoice to a customer, the company receives payment from a customer, or some other clearly defined occasion. The specific triggers for commission and bonus payments should be clearly defined to minimize the chance of disputes with your employees.
  • Outlining if commissions are shared if multiple employees contribute to a sale- If your employees work in teams, it’s essential to identify whether any commission payments will be shared among multiple workers and how. Defining when and how commissions are shared can minimize the likelihood of arguments erupting among your workforce.
  • Specifying how commissions and bonuses are calculated- One of the fastest ways to invite litigation from an employee is to disagree over how commission and bonus payments are calculated. By ensuring that your workforce knows exactly how these payments are calculated in advance, you can likely avoid a lawsuit from an upset worker.
  • Laying out what happens if an order is canceled or returned- Returns and canceled orders are inevitable for any business. But what happens to an employee’s commission or bonus if it’s their customer that cancels or returns an order? Spelling this out in an agreement can help give you and your workers peace of mind.

Taken together, written bonus agreements in California reduce your odds of fighting with your employees over their compensation. That saves you time, energy, and legal bills. As an added benefit, you’ll also avoid conflicts with state labor laws.

How a Lawyer Could Help

Like those in most states, California labor laws are complicated and difficult to parse. You can minimize your chances of litigation with an employee by writing a clear commission and bonus plan. For real protection, have that plan approved by an experienced California business lawyer.

The team at Wagner Zemming Christensen can go over your existing commission plan to ensure that it’s in compliance with state law, modify your plan if necessary, or help you draft a new California compensation plan. If an employee files suit, we can represent you in court to see that your rights are upheld.

It’s much better to avoid potential legal battles than to take your chances. So draw up a written commission and bonus plan in advance, and talk to an attorney as soon as possible. Set up your initial compensation by calling our Riverside office, speaking to one of our online chat agents, or visiting our contact page.


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