How to Avoid Wage Claims From Bonus and Commission Programs

How to Avoid Wage Claims from Bonus and Commission Programs

By Jonathan K. Driggs, Attorney at Law, P.C.

“You didn’t pay me all of my commission!” “My bonus was supposed to be 3% of sales not 2%!”  Do any of these complaints sound familiar? Bonuses and commissions can be effective ways to motivate and reward employees, but they are also a frequent source of disputes, resulting in the filing of wage claims and damaged employment relationships.

Utah law allows employers a fairly high degree of flexibility when designing variable pay programs—but problems arise when important details are not clarified up front.  The following are some tips for how to design variable pay programs in order to avoid problems:

Create a written document that explains how the variable pay program will work.  The best practice is to have employees sign the document and place it their personnel files.  It can also be acceptable to include the document in an employee handbook with written confirmation from employees that they have received the handbook.

Your policy or program should include extremely clear explanations regarding the following:

  • Which employees are eligible to participate (e.g., “fulltime sales department employees”) and any specific eligibility requirements (e.g., “achieves at least 80% of sales goals”).
  • How the variable pay will be calculated—be sure to clarify any potential ambiguities up front.  Factors which could reduce or eliminate the bonus or commission must be clearly explained (e.g., charge backs, increased expenses, violations of policy, etc.)
  • The schedule for paying out the bonuses or commissions.
  • How and when the bonuses or commissions will end if the employment relationship is terminated.

A statement that the employer retains the right to modify or discontinue the program at its discretion should also be included.

By giving this important matter some careful thought in advance, your variable pay program will have a better chance of serving your intended purposes while minimizing the risk of disputes.

This article should not be construed as legal advice.


Jonathan K. Driggs is an employment law attorney with over 18 years of experience, including 3 years with the Utah Labor Commission.  www.jdriggslaw.com


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