Under California Labor Code 2751 (amended in 2012), effective January 1, 2013, employers must provide all commissioned employees who render services in California with a written contract detailing the method by which the commission shall be computed and paid.  This law applies to all employers (both in-state and out-of-state) who pay commissions to employees working in California. 

An often-overlooked aspect of the amended law is that it requires the employer to obtain the employee’s written acknowledgement of receipt of the commission contract. 

Under Section 2751, the term “commission” means compensation paid to any person for services rendered in the sale of the employer’s property or services and based proportionately upon the amount or value of the property or services.  The term does not include short-term productivity bonuses, nor does it include 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.

In addition, if the contract has an expiration date, and the commissioned employee continues to work after that date, the contract terms are presumed to remain in full force and effect until the employee is terminated or a new contract is issued.

Employers must be aware of these upcoming requirements and ensure that any commission plans for employees rendering services in California are in writing, receipt of which is acknowledged in writing by the employees. These commission plans should carefully state the precise method by which the commissions are calculated and paid.  Employers should review their commission documentation now in order to ensure compliance with California law by January 1, 2013.