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Details Of Sales Commissions Should Be In Writing

On Behalf of | Nov 17, 2015 | Employment Law

New Hampshire Wage and Hour Law require employers to provide written notice to their employees of their compensation and benefits and therefore who, what, when, and how of sales commissions need to be put in writing. Companies often clarify in writing to a salesperson that he will not be paid commissions until the customer pays. However when the commission is paid is different from when it is earned.

This issue comes about often when a company has a salesperson who may have been working for the company for years and who always is paid his commissions on sales orders he booked only after the customer pays. If the salesperson leaves the employ of the company and then tries to find out information about the amount paid on the sales order, the company’s management may respond back that since the former salesperson is no longer an employee, it does not matter to him when the customer pays so long as it was after his employment ended. Thereafter the salesperson files a wage claim.

The company, while not ever having clarified to the salesperson what sales commissions are owed to a terminated salesperson, is able to point out at the hearing that the salesperson knew that he would not be paid until the customer paid and that the commissions he seeks were for sales orders he booked while employed but were paid by the customer after his employment had ended. Under the scenario, the salesperson would be awarded his sales commissions and may get attorneys’ fees and possibly twice the commission owed.

As a general rule, New Hampshire law is that employees are entitled to commissions on sales orders closed prior to their employment termination, irrespective of when they are paid. That does not mean that the employer is required to pay the sales commission to the former employee differently than the prior arrangement that was made nor does it mean that the sales commission is not conditioned upon payment by the customer. It means that when, and if, the customer does pay, the former employee is entitled to the commission. This can be of particular concern when the company has a new salesperson taking over that customer and pays that new salesperson commissions on all orders paid by the customer even for sales orders that were booked by the former salesperson. The company may have to pay the sales commission twice; once to the new salesperson, and then to the former salesperson.

Whatever the sales commission policy is needs to be in writing and provided to the salespersons. If the sales commission procedure is for more than one employee, a commission policy can be created and presented to each of the salespersons and have them sign a receipt acknowledging they have read and understood the policy. If the sales commission details are for a particular employee, the sales commission might be set forth in a contract which would clarify that the contract does not alter their employee-at-will relationship between the company and the salesperson. Furthermore, consideration should be made as to whether or not the company should seek a non-solicitation agreement for all salespersons prohibiting them for a limited period of time after leaving the company from soliciting business from the customers that they did business with for the company.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].