What You Need to Know About Commission Sales:
Advantages, Risks, and Rights of Commission Workers
Commission sales positions are governed by different laws and expectations compared to hourly retail jobs. Traditionally, commissioned salespeople have worked in specific retail sectors such shoes, jewelry, furniture and cosmetics – and many department stores have both commissioned and hourly salespersons. There are no hard and fast rules that decide if a sales position is paid by hourly wage or commission, and sometimes the employer offers both options. The following analysis is based on legal research and interviews with commissioned salespeople across the New York retail landscape.
What are the advantages of working on commission?
The main advantage of working on commission can be the opportunity/potential to make more money than is possible under an hourly wage scheme. If fair policies are in place, becoming a commissioned salesperson can truly offer retail workers the opportunity to develop good careers. As a commissioned worker you can share in a percentage of the increased sales. Also, you can develop your own client base and be rewarded for superior product knowledge and salesmanship.
If you are paid an hourly wage, you’ll make the same amount irrespective of how busy or slow the store is. If your sales shoot up, the store may enjoy higher profits but you, the person doing all the selling, are still earning the same wage.Hourly workers may find it harder to be rewarded for excellent sales, because very few retail employers provide profit-sharing, end of year bonuses or even promotions for outstanding salespersons. In fact, many retail workers report that the reward for meeting sales goals is simply “getting on the schedule.”
What are the risks of working on Commission?
- If your sales go up, your paycheck can also go up. On the downside, a slow selling period might mean a smaller paycheck. However, there’s a safeguard to lowered sales. Namely, commission workers are also subject to minimum wage laws (See “More Information” below for exceptions). Your commissions may go down but you are still protected by the minimum wage laws.
- Predictability of income is also a major dilemma that commission workers have to manage. Many commission workers report setting an internal sales goal each week. But sales can be irregular for a wide variety of reasons that include: rain/weather; increased staffing; general consumer willingness to spend; fashion trends. Sales people don’t control those factors and they can mean great irregularity in weekly pay.
- The commission “draw” system is widely used in large department stores like Macy’s and Lord & Taylor. A draw is a guaranteed weekly “loan” from the employer, calculated based on weekly sales goals. If the commissions earn that week exceed the draw, then the excess is paid on that week’s paycheck. However, if the commissions earned one week fall short of the draw, the worker runs a “deficit,” and that week’s commissions aren’t reflected on that week’s paycheck. Any excess commission in the following weeks must be used to pay back the deficit. Commission workers are not liable to pay back the deficit when the employment is terminated—in that sense, draw pay is not really a loan. Therefore the draw system It can have the effect of smoothing out the irregularity of weekly commissions, but can also put more pressure on commissioned workers running a deficit.
Ultimately, the decision to work on commission is an individual one. You have to estimate how much you think might be earned in the commission scheme—also, you have to figure out if some of the additional pressures of commission sales are worth it to you.
Here are some other things about a commission job to consider. Legally, commissioned workers have some protections but workers complain that:
- They make a sale but then aren’t credited for them. Either the cashier doesn’t credit them or another sales person “steals” the sale.
- A commission is earned on a sale, but then months (or even years) later items are returned and either deducted from an individual salesperson’s current sales or deducted from the general pool of commissioned sales. Many commissioned workers don’t think it’s fair that they can earn a commission and then have it revoked in a much later pay period.
- Commission rates are switched without notice or explanation, and there can be no advance warning.
- Some commissioned workers feel they are pitted against each other. This can be a problem especially when a sales floor is overstaffed.
What are my legal rights as a commissioned salesperson?
Commission workers are protected by minimum wage law and other FLSA (Fair Labor Standards Act) protection with some exceptions. For example, “outside salespeople” and those earning more than 1.5x the minimum wage may be exempt from some FLSA requirements.
By law, an employer is required to provide a copy of the terms of your commissioned sales jobs in writing, signed by both employer and employee. This term sheet should describe:
- How often the employee will be paid
- How wages, salary, commissions and draw will be calculated
- The employer is also required to provide a listing of all sales that details all earning paid or due and unpaid.  Keeping your own records and occasionally demanding the employer’s statement of your sales may be a good way to make sure your pay reflects your hard work on the sales floor.
 In California, it has been ruled illegal to deduct unaccredited returns from commission workers on a pro rata basis. See Hudgins v. Neiman Marcus Group, 34 Cal.App.4th.1109 (1995).
 Facts on NYS labor law for commissioned salespeople are drawn from NY Labor Law § 193 and from a fact sheet published on the website of the NYS Dept. of Labor, “Payment of Commissions Frequently Asked Questions (FAQ).” Available at: http://www.labor.ny.gov/legal/counsel/pdf/payment-of-commissions-frequently-asked-questions.pdf
 If you want to keep track of your sales, the NYS Dept. of Labor has posted this convenient worksheet for you to print out: http://www.labor.ny.gov/workerprotection/laborstandards/PDFs/Ls223_1.pdf