Many companies elect to pay their employees a commission for work performed on the company’s behalf. The upside to paying employees a commission for their work is clear: It incentivizes those employees to perform work faster, bring in more customers, and to improve themselves and by extension, the business.
Of course, with that benefit comes a burden, as well: Administering a commission pay system can be complex and time-consuming, and more importantly, it implicates numerous complications with the wage and hour laws, including under the Fair Labor Standards Act and the North Carolina Wage and Hour Act.
First, a commission pay system can be difficult and complicated to administer–and this creates an additional opportunity for legal risks to manifest. For example, the employer must have clear processes in place to determine who is entitled to a given commission and under what circumstances the commission pay entitlement arises. Under the N.C. Wage and Hour Act, employees are entitled to payment of all promised wages. If the employee cannot understand the method by which his commission compensation is paid because the system is unclear and confusing, then the employee has an opportunity to raise questions about the amounts actually paid to him, and could potentially establish a claim for unpaid wages.
Second, if the employee receiving commissions is non-exempt from the overtime laws of the Fair Labor Standards Act, then the employer must determine an appropriate method for ensuring that the employee’s hours are accounted for, and that the employee receives overtime compensation not only based upon base wages, but based upon commission compensation, as well. Federal regulations are meticulous as to what methods of awarding overtime compensation are to be used with regard to employees on commission. Given that paying commissions is already complicated, these overtime steps can be easily overlooked.
One reason these laws can be so dangerous to an employer is that if the employee proves a case, then the employer can be held responsible for the employee’s own attorney fees. In other words, litigation over a few hundred dollars of wages could very well result in an award for many thousands of dollars in attorney fees in favor of the employee.
If you are an employer, and you have concerns about the risks associated with your commission pay system, the business attorneys at Asheville Legal have the experience and knowledge necessary to correct your commission pay system and bring it into compliance with the wage and hour laws. Likewise, if you are an employee, and you have concerns about whether or not your employer is paying you the commissions you are owed, give Asheville Legal’s employment attorneys a call to learn whether filing a claim is the right solution for you.