Unpaid Commissions and Bonuses

A “draw” is similar to an advance, a payment made to an employee in anticipation of future commissions. It often functions like a salary to provide some steady payment to commission employees.

The amount of a draw can be deducted only from future commissions, not from earned commissions. In other words, once a commission is “earned” because a sale is completed, the employer cannot attempt to deduct any portion of the draw from the earned commission.  What an employer may do is reduce future commissions by the amount of the draw.

In some circumstances, an employer may require an employee to pay back a draw. This is permitted in New York only if the written agreement has specifically language discussing “reconciliations” (the calculation of how much an employee has earned versus how much he has received in draws) and if the agreement says how frequently these reconciliations happen. If there is no written agreement, or if the agreement does not spell out the reconciliation process, the commission employee cannot be required to repay draws.

It depends on how you are paid, how much you are paid, and your job duties. Commission employees who are “outside sales” employees are not entitled to overtime. Any other commission employees must receive at least the minimum wage and overtime pay in a combination of commissions and draws in each pay period.

Bonuses do not directly affect your entitlement to overtime, although the amount you receive in bonuses may be included when calculating your wages for purposes of determining whether you meet the exemption salary threshold. Find out more about overtime exemptions.

In every state, it is preferable to have a written agreement setting out the terms of any commission arrangement. Without a written agreement, courts will look to the prior terms of dealing between the employer and commission employee.

To be a true bonus, payment must be entirely discretionary. In other words, there is no entitlement to a true bonus.

However, if an employee believes they have been promised a bonus, particularly based on a long history with the employer or if an employee was promised payment for meeting certain individual performance goals, a court may find that an employee must be paid the bonus.

Under New York law, employers cannot withhold wages. Commissions are considered “wages” when they are earned. This should be explained in a written agreement, but if there is no agreement or the agreement is silent, courts consider the prior dealings between the employer and commission employee. If there are no prior dealings, a commission is considered “earned” when the employee can present a client who is willing to enter into a contract with the employer, usually for the purchase of goods or services.

Once a commission or bonus is considered “wages,” employers in New York cannot withhold these payments or any part of the payment or take deductions, except for a small number of deductions set forth in the law for the benefit of the employee, such as pension or insurance.

True bonuses may be withheld in part or entirely, since they are made entirely at the employer’s discretion. But if there is a long history of steady bonuses suggesting entitlement to bonuses or an employee is given reason to believe that they will receive a bonus for meeting certain goals, that payment may be considered a commission or otherwise part of an employee’s wages.

If the commissions have been “earned,” then they are wages and must be paid even after termination. If commissions have not yet been “earned” but a sale is in process or concludes after the employee separates from the employer, the court will first analyze any written agreement.

True bonuses will typically not be awarded upon termination. However, if an employee has good reason to believe they are entitled to a bonus, that bonus may be considered wages and must be paid upon termination. If the termination is based upon any illegal discrimination or retaliation, see here [link to internal page re retaliation], damages including recoupment of wages or bonuses may be available.

If you believe you are owed commissions or have any questions about whether you should receive a bonus, you should discuss your situation with an experienced wage and hour attorney. Pelton Graham LLC has handled many cases involving unpaid wages in a wide variety of industries.