BONUSES AND COMMISSIONS IN CALIFORNIA
San Diego and California employees often earn incentive pay based on performance. Bonuses and commissions are additional wages that are not part of an employee’s regular hourly wages or salary. Bonuses and commissions are earned when the employee or salesperson has met certain criteria, such as sales or other performance or profitability metrics. Disputes often arise regarding the bonus or commission agreement, which may be based in an agreement or commission plan or implied based on a prior non-written agreement. Commission agreements, in particular, must be in writing and employees should request that their employers include the specific terms of their bonus commission plan in a written document. Additionally, whether a bonus is discretionary (up to the employer) or non-discretionary (based on objective criteria) will affect the legal rules that apply. Failure to pay incentive pay is a form of unpaid wages and is subject to the same requirements under the law as hourly wages. If you’ve “earned” the bonus under the terms of the incentive plan, you’re entitled to receive it in a timely fashion under the Labor Code.
NON-DISCRETIONARY WAGES MUST BE PAID
For non-discretionary bonuses or commissions that are based on certain metrics, employers must abide by the terms of the underlying agreement:
- An employer cannot rewrite the terms of the bonus or commission agreement once the required sales or performance has been completed.
- If the bonus plan allows periodic or annual changes, those changes cannot be applied retroactively to reduce the amount of money the employee receives.
- Bonus and commission plans cannot claw back wages that the employee has earned under the agreement based on a separate requirement, such as continued employment for a certain period. This is known as an illegal forfeiture of wages.
- The agreement cannot be unconscionable or against California public policy.
- As in baseball, under California law “tie goes to the runner” for bonuses and commissions.
- This means that if a commission or bonus provision is unclear, case law holds that the employee is entitled to the benefit of the doubt under the plan.
- Bonuses and commissions must be accurately calculated by the employer.
Bonuses and commissions, like all incentive pay, may affect your “regular rate of pay,” which results in an increase in overtime pay. Likewise, additional forms of compensation, like tips in the service industry, may also form the basis for a separate claim that increases the amount owed to the individual.
YOUR COMMISSIONS AFFECT YOUR “REGULAR RATE OF PAY”
We are seeing a lot of cases these days based on a company’s failure to include all required remuneration in the overtime rate of employees. When you earn a non-discretionary bonus or commission, your overtime rate for that earnings period isn’t just time and a half or double your usual hourly rate, it may actually be much higher. This is because the Labor Code and federal law requires payment at the regular rate of pay. Even though the Department of Labor has published numerous opinion letters on this very issue, and despite the fact that the common payroll companies employers use to process wage statements and pay wages are equipped to automatically calculate and pay “regular rate,” employers often fail to do so. You are essentially being shorted wages. When you file a lawsuit, you obtain these amounts going back for a period of 4 years under the Labor Code and Business & Professions Act.
For discretionary bonuses that are up to the employer, such as year-end bonuses, these rules do not typically apply. In certain cases, however, bonuses defined as “discretionary” are actually based on specific metrics that require payment once the employee completes the prerequisites for payment.
TIMELY PAYMENT IS REQUIRED
In all cases, once a bonus or commission is earned, it must be timely paid. Depending on the type of bonus or commission, the payment generally must be paid on the payday within that pay period. Under California law, employers cannot unreasonably delay in paying you the bonuses or commissions that you earned, as doing so will expose the company to additional wage penalties. Once earned, incentive pay becomes vested right to be paid the amounts as early as the pay period in which the bonus or commission wages are earned.
PENALTIES FOR VIOLATIONS
If a company fails to meet any of these legal requirements for bonuses or commissions, the employee is entitled to significant damages and penalties that increase the amount of money owed:
- Payment of the full amount of bonus or commission
- Interest on the amount owed
- Waiting time penalties (up to 30 times the amount of unpaid wages owed)
- Wage statement penalties (up to $4,000 per employee)
- Liquidated damages (double pay)
- Punitive damages
- Attorney’s fees and costs
Unpaid incentive pay, commissions and bonuses may also serve as a basis for a class action lawsuit in state or federal court if the company has neglected to pay a group of employees the wages owed. And if a company pays women or people of color a lower bonus or commission rate for the same work as other individuals, then the employee may also seek damages as part of an equal pay lawsuit.
HOW TO OBTAIN THE WAGES YOU EARNED
Bonus and commission disputes should be capable of being resolved without filing a lawsuit. Penalties to employers are significant, as California law protects the right of employees and salespeople to obtain the wages they fairly earned. Our approach at Ferraro Employment Law is to fully investigate your claim, review all relevant documents and communications, request additional information if necessary and then prepare a demand letter or formal legal complaint seeking the full amount of unpaid bonuses, commissions and related penalties that you are entitled to under the law.
GET THE WAGES YOU’RE ENTITLED TO
Contact us today to discuss your best approach for getting the money that you earned under your bonus or commission agreement. Our case evaluations are always free and we will help you develop a plan for obtaining payment.