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  1. #1
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    Default Can an Employer Retroactively Modify Commissions for the Sales Staff

    My question involves employment and labor law for the state of: Florida

    The employer is paying a weekly draw against commission to commissioned salespeople. Then, when commissions are due, the employer charges against the commissions the draws paid plus an additional 30 percent. Example: Pays a draw of $500 per week. In a month (four weeks), Employee makes sales earning a commission of 2% totaling $5000 ($250,000 sales). The employer charges the employee for the four weekly draws not $2000, but $2600, thus issuing payment to the employee of $2400 (before deducting the employee's FICA, Medicare, income taxes, and authorized deductions for health insurance, etc.) in commissions on the $5000 commission earned.

    The employer says that the 30 percent deducted from the commission rate is for the costs of employing the salesperson: for example, worker's compensation, errors and omissions insurance, the amounts the company pays for the employee's health insurance (above what the employee pays and authorizes), the company's portions of federal and state unemployment tax, the employer's social security tax. In short, the employer is charging the salespeople for the costs the employer takes on by employing the salespeople by deducting from their commissions 30 percent more than the draws paid them. The deduction is not itemized except as recovery of draw.

    The salespeople's commission schedule specifies that the rate of commission is 2% (for example), and their entire compensation is commission (assuming, of course, that they make enough in sales to earn commissions greater than 130% of the draw). Due to the 130% of the draw being recovered, however, it is impossible for the salespeople to actually be paid the total commission rate.

    In addition, the salespeople's contract states that "You shall not be liable to us for any expenses incurred in the operation of our business." However, worker's compensation premiums, unemployment taxes, Social Security taxes, E&O insurance, health insurance, are definitely expenses of the business.

    Is this employer's practice legal?

  2. #2
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Quote Quoting 41294
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    My question involves employment and labor law for the state of: Florida

    The employer is paying a weekly draw against commission to commissioned salespeople. Then, when commissions are due, the employer charges against the commissions the draws paid plus an additional 30 percent. Example: Pays a draw of $500 per week. In a month (four weeks), Employee makes sales earning a commission of 2% totaling $5000 ($250,000 sales). The employer charges the employee for the four weekly draws not $2000, but $2600, thus issuing payment to the employee of $2400 (before deducting the employee's FICA, Medicare, income taxes, and authorized deductions for health insurance, etc.) in commissions on the $5000 commission earned.

    The employer says that the 30 percent deducted from the commission rate is for the costs of employing the salesperson: for example, worker's compensation, errors and omissions insurance, the amounts the company pays for the employee's health insurance (above what the employee pays and authorizes), the company's portions of federal and state unemployment tax, the employer's social security tax. In short, the employer is charging the salespeople for the costs the employer takes on by employing the salespeople by deducting from their commissions 30 percent more than the draws paid them. The deduction is not itemized except as recovery of draw.

    The salespeople's commission schedule specifies that the rate of commission is 2% (for example), and their entire compensation is commission (assuming, of course, that they make enough in sales to earn commissions greater than 130% of the draw). Due to the 130% of the draw being recovered, however, it is impossible for the salespeople to actually be paid the total commission rate.

    In addition, the salespeople's contract states that "You shall not be liable to us for any expenses incurred in the operation of our business." However, worker's compensation premiums, unemployment taxes, Social Security taxes, E&O insurance, health insurance, are definitely expenses of the business.

    Is this employer's practice legal?
    I am assuming that you receive a W2 at the end of the year? If so, the employer's actions are blatantly illegal. The problem is going to be proving it.

  3. #3
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    I kind of view it a bit differently. I think as long as they have notified you there will be an administrative overhead percentage cut in the calculation I think it perfectly legal as long as minimum wage and overtime laws are adhered to.

  4. #4
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Quote Quoting Disagreeable
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    I kind of view it a bit differently. I think as long as they have notified you there will be an administrative overhead percentage cut in the calculation I think it perfectly legal as long as minimum wage and overtime laws are adhered to.
    Employers are not permitted to deduct anything from any employee's pay, without permission from the employee. They are also specifically not permitted to deduct employer taxes from employee's pay...nor are they permitted to deduct worker's comp insurance. They are breaking all kinds of laws all over the place, not just employment laws. Again, however, the problem would be proving it.

  5. #5
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Hold on just a minute. Not all of the above is true, not in a blanket statement.

    Employers are not permitted to deduct anything from any employee's pay, without permission from the employee.

    What an employer can and cannot deduct from an employee's pay, with or without permission, is state specific. There is no Federal law to that effect, not as an across the board prohibition.

    I'm not debating the illegality of deducting employer taxes or workers comp insurance - I'm only stating that the above quoted statement is not true, as stated.

    And I would be inclined to say not that proving it is the problem - enforcement is the problem, since FL did away with their DOL some years back.

  6. #6
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Agreed. We have several different things happening here.
    - Federal law (FLSA) is interested in minimum wage, overtime and very little else. See if there is an actual FLSA violation.
    - As stated, FLSA does not care about ANY deductions as long as MW/OT is complied with.
    - See if the FLSA 7(i) Retail/Service Establishment exception is in play. This does not exactly eliminate the overtime requirement, as much as replacement it with a different more complicated requirement.
    - Florida has a higher then federal MW, but very little in the way of labor law, and it does not direct enforce what little labor law it has. Florida is generally considered to be a just-like-federal state for most labor law purposes. Worse, no FL DOL, so no FL wage claims. State law claims all must go to court.
    - You mentioned "contract". See a lawyer and have them read the contract. Contracts cannot make statutory law such as FLSA go away but they can add new requirements.

  7. #7
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    The employer can legally impose the 30% fee if it is a part of the agreement. If your contract says "we will pay you x" and they actually pay you "x - 30%" then you have a breach of the terms of the contract. Only you can see what the full text of the contractual bargain.

  8. #8
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Quote Quoting llworking
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    Employers are not permitted to deduct anything from any employee's pay, without permission from the employee. They are also specifically not permitted to deduct employer taxes from employee's pay...nor are they permitted to deduct worker's comp insurance. They are breaking all kinds of laws all over the place, not just employment laws. Again, however, the problem would be proving it.
    A salesperson has it in writing (an email from HR to a salesperson) the statement that the 30% is for the employer's "burden" and stating that unemployment tax, worker's compensation insurance, and Social Security are among the components of that "burden." It is illegal in Florida for the employer to deduct any money from wages to pay the unemployment tax or worker's comp premiums. (Florida law also says that any contractual agreement to do so is invalid.) There's no ambiguity about the unemployment tax or WC premiums: They are breaking the law in those instances.

    I can't find anything on the Web (IRS, anywhere else) saying that deducting from employees' wages the employer's portion of Social Security and Medicare is illegal, but plenty saying that the employer is to pay them. The totality being charged to the employee as a deduction from commissions, however, it seems certain that the employer will be illegally deducting these expenses on the corporate tax return--they cannot both have them paid by the employees' commissions and deduct them as expenses. It's inconceivable that they would break out and not deduct these expenses for less than 1 percent of the company's employees.

    Then there is that clause in the salespeople's contract that states: "You shall not be liable to us for any expenses incurred in the operation of our business." That right there makes the deduction a breach of contract. Whatever the law may say about deducting from the employees' wages for the expenses other than FUTA and WC, everything they're deducting is an "expense incurred in the operation of" the business, and thus cannot, contractually, be deducted.

    It is an oddity of the law that the employer can deduct anything legally that is not a prohibited deduction (WC, FUTA) just so long as the employee's hourly wage does not dip below the minimum wage. It pretty much says that the employer can state any pay rate, and then deduct arbitrarily down to the minimum wage rate.

    Still to be determined (as commission payments have not yet been made) is whether the employer will deduct the 30% over-draw before or after applying taxes and other withholding to the commission total. If the former, they're only breaking several laws. If the later, they're also imposing at least a couple of thousand dollars in income, FICA, and Medicare taxes on thousands of dollars of W2 income that the employer never receives. Should that be the case, I would predict an instant resignation of the sales staff.

  9. #9
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    Quote Quoting 41294
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    A salesperson has it in writing (an email from HR to a salesperson) the statement that the 30% is for the employer's "burden" and stating that unemployment tax, worker's compensation insurance, and Social Security are among the components of that "burden." It is illegal in Florida for the employer to deduct any money from wages to pay the unemployment tax or worker's comp premiums. (Florida law also says that any contractual agreement to do so is invalid.) There's no ambiguity about the unemployment tax or WC premiums: They are breaking the law in those instances.

    I can't find anything on the Web (IRS, anywhere else) saying that deducting from employees' wages the employer's portion of Social Security and Medicare is illegal, but plenty saying that the employer is to pay them. The totality being charged to the employee as a deduction from commissions, however, it seems certain that the employer will be illegally deducting these expenses on the corporate tax return--they cannot both have them paid by the employees' commissions and deduct them as expenses. It's inconceivable that they would break out and not deduct these expenses for less than 1 percent of the company's employees.

    Then there is that clause in the salespeople's contract that states: "You shall not be liable to us for any expenses incurred in the operation of our business." That right there makes the deduction a breach of contract. Whatever the law may say about deducting from the employees' wages for the expenses other than FUTA and WC, everything they're deducting is an "expense incurred in the operation of" the business, and thus cannot, contractually, be deducted.

    It is an oddity of the law that the employer can deduct anything legally that is not a prohibited deduction (WC, FUTA) just so long as the employee's hourly wage does not dip below the minimum wage. It pretty much says that the employer can state any pay rate, and then deduct arbitrarily down to the minimum wage rate.

    Still to be determined (as commission payments have not yet been made) is whether the employer will deduct the 30% over-draw before or after applying taxes and other withholding to the commission total. If the former, they're only breaking several laws. If the later, they're also imposing at least a couple of thousand dollars in income, FICA, and Medicare taxes on thousands of dollars of W2 income that the employer never receives. Should that be the case, I would predict an instant resignation of the sales staff.
    One thing for sure that I can say...is that the IRS would be VERY interested in this employer. Under the tax code the employer's share of social security and medicare is the employer's responsibility. They honestly are not permitted to shift that burden to the employee...nor are they permitted to shift FUTA taxes to the employee either.

    To be honest, this sound to me like an employer who sometime in the past got dinged by the IRS for treating employees as contractors, and who now imposes this surcharge on those employees to make up for the fact that he is required to treat them as employees. If I knew who he was, I would report him to the IRS myself.

  10. #10
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    Default Re: Can an Employer Retroactively Modify Commissions for the Sales Staff

    This is not employee pay. This is a commission structure. After the appropriate deductions have been made the remainder becomes employee pay. You missed the distinction.


    Quote Quoting llworking
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    Employers are not permitted to deduct anything from any employee's pay, without permission from the employee. They are also specifically not permitted to deduct employer taxes from employee's pay...nor are they permitted to deduct worker's comp insurance. They are breaking all kinds of laws all over the place, not just employment laws. Again, however, the problem would be proving it.

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