Commissions

HR in NY

We have about 25% of our Sales Reps on a commission plus salary. When calculating our commissions we factor in a bad debt reserve. It's roughly 5% of the outstanding receivables. This is actually deducted from their total commission. At the end of the fiscal year if the rep has no outstanding bad debt they are paid back everything that we deducted. If there is outstanding bad debt we do not payback or we only payback a portion. Say we deducted $800.00 and the bad debt was $500.00 we would payback $300.00. My question is - is this legal? Each Sales Rep is provided with a commission worksheet at the beginning of each month when the new commissions are calculated. This is no secret. I do not like this system and I am pushing for a new commission structure. I thought if I could come back and say what we are doing is not right I would have a leg to stand on. I hope I have given you enough info. Thanks as always for your help.

marc

A bad debt reserve for some commission structures is quite common. You are merely deferring the payment of a portion of the commissions until the underlying sale has proven itself. I don't know if your state law has any prohibition towards this, but I did a similar reserve in Nevada. Ours was for 100% commissioned sales people who were not employees, which is a bit different than your scenario.

If you were going to change your structure, how would you do it. Do you want to pay out whether or not the customer pays? Please be aware of the bottom line impact. I also think it is a good idea to have the sales people motivated to sell to customers who will pay. Let them share the consequences of their sales.

Just my personal opinion.

Brad Forrister

A bad debt reserve also helps give the sales force an incentive to make follow-up calls to collect, if that's part of your model.

There is a NY statute that regulates when commission payments must be made. It's in Chapter 31 §191.

c. Commission salesman.--- A commission salesman shall be paid the wages, salary, drawing account, commissions and all other monies earned or payable in accordance with the agreed terms of employment, but not less frequently than once in each month and not later than the last day of the month following the month in which they are earned; provided, however, that if monthly or more frequent payment of wages, salary, drawing accounts or commissions are substantial, then additional compensation earned, including but not limited to extra or incentive earnings, bonuses and special payments, may be paid less frequently than once in each month, but in no event later than the time provided in the employment agreement or compensation plan. The employer shall furnish a commission salesman, upon written request, a statement of earnings paid or due and unpaid.

I don't know how this would affect the scenario you describe. You might be able to handle it in how you define your commission system, so that the commissions are not due until payment has been received, and everything paid sooner than that is an advance against true commissions.

Brad Forrister
Director of Publishing
M. Lee Smith Publishers