If you work in sales or another commission-based position, you may depend on commissions for a significant portion of your income. But what happens to those commissions if you leave your job or your employer fires you?
The answer depends on several factors, including your employment agreement, commission plan, when the commission was earned, and the reason the employer has not paid you. Pennsylvania law generally requires employers to pay employees the wages they have earned. However, determining whether a commission has actually been earned can be more complicated than simply looking at when a sale occurred. If you believe your employer is withholding commissions you earned, understanding Pennsylvania’s wage laws and your compensation agreement can help you determine what options may be available.
Are Commissions Considered Wages in Pennsylvania?
They can be. Pennsylvania’s Wage Payment and Collection Law (WPCL) defines wages broadly and can include commissions, bonuses, and other forms of compensation when they are earned under an agreement between an employer and employee.
This distinction is important. An employer generally does not owe an employee every commission that might eventually have been earned. The question is whether the commission became “earned compensation” under the terms of the applicable agreement or compensation plan. Your employment agreement, commission plan, offer letter, employee handbook, or other written documents may explain when a commission becomes earned and payable.
When Is a Commission “Earned” in Pennsylvania?
There is no single rule that determines when every commission becomes earned. The answer often depends on the agreement between the employee and employer.
For example, a commission plan might provide that a commission becomes earned when:
- A customer signs a contract
- A sale closes
- The employer receives payment
- A customer makes a required payment
- A product is delivered
- A service is completed
- A transaction is approved
- A certain return or cancellation period expires
These distinctions can become extremely important when an employee leaves the company before the employer pays the commission. Consider a salesperson who closes a large sale on Friday and resigns the following Monday. If the commission agreement says the commission is earned when the customer signs the contract, the employee may have a stronger argument that the commission was already earned. But if the agreement states that commissions are not earned until the employer receives payment from the customer, the analysis may be different.
The language of the commission agreement matters.
Can You Lose Your Commission If You Quit?
Quitting your job does not automatically mean that you lose commissions you have already earned. If a commission was earned before your employment ended, your employer may still have an obligation to pay it according to the applicable compensation agreement and Pennsylvania wage law. However, employers sometimes have commission plans that contain specific provisions addressing what happens when an employee resigns.
For example, a commission plan might state that:
- Employees must still be employed on the payment date
- Commissions are forfeited after resignation
- Commissions are only earned after customer payment
- Commissions are subject to cancellation or charge-backs
- Employees must complete certain requirements before a commission is earned
Whether such provisions are enforceable can depend on the specific language and circumstances. If you are considering leaving a commission-based job, it can be helpful to review your compensation agreement before resigning.
Can You Lose Your Commission If You Are Fired?
Being terminated does not necessarily eliminate your right to commissions that were already earned. For example, suppose you completed all of the requirements necessary to earn a $10,000 commission. Your employer then terminates you before the next regular commission payment.
The fact that you are no longer employed does not necessarily mean the employer can simply refuse to pay the commission. However, if the commission had not yet been earned under the employer’s written plan, the situation may be different. This is one reason employees should carefully review their commission agreement and determine exactly when commissions become earned.
What If Your Employer Says You Had to Be Employed on the Payment Date?
Some commission plans contain language stating that an employee must remain employed through the date commissions are paid. This can create a dispute when an employee has completed the work necessary to generate a commission but leaves before the scheduled payment date.
For example:
January 10: Employee closes a sale.
January 15: Under the commission plan, all conditions for earning the commission are satisfied.
January 31: Employee resigns.
February 15: Commission payment would normally be issued.
If the commission was already earned on January 15, the employee may have a stronger argument that the employer cannot simply treat the later payment date as a reason to eliminate the earned compensation. But the actual commission agreement and applicable law must be examined.
What If the Customer Hasn’t Paid Yet?
This is one of the most common sources of commission disputes. Suppose you make a sale, but your employer does not receive payment from the customer until after you leave. Whether you are entitled to the commission may depend on the compensation plan. Some employers define a commission as earned only after the customer pays. Others may define the commission as earned at an earlier stage of the transaction.
The difference can be significant. If you are leaving a commission-based position, determine whether your compensation plan makes customer payment a condition for earning the commission.
Can an Employer Change the Commission Plan?
An employer may be able to change a commission structure prospectively, depending on the terms of the employment relationship and applicable law.
However, changing the commission plan does not necessarily allow an employer to retroactively eliminate compensation that an employee has already earned. For example, an employer may announce in January that the commission structure will change beginning February 1. That does not automatically answer what happens to commissions earned under the January plan. Employees should save copies of the commission plans that were in effect when the disputed sales or transactions occurred. Additionally, employees should retain copies of any updated Agreements that they are asked to sign regarding the commissions structure.
What If My Employer Changes the Commission Plan After I Make a Sale?
This situation deserves particular attention. Imagine that you close a sale on Monday. On Tuesday, your employer announces a new commission structure and says the new rules apply to Monday’s sale. Whether the employer can do this depends on the terms of the compensation arrangement and the circumstances surrounding the change.
Important questions may include:
- When was the commission earned?
- What did the commission agreement say at the time?
- Was the employee notified of the change?
- Does the agreement allow retroactive modifications?
- Did the employer attempt to change an already-earned commission?
- Was the compensation plan written or communicated in another form?
Keep copies of the old and new commission plans if your employer changes the compensation structure.
What If My Employer Refuses to Pay My Final Commission?
If your employer does not pay a commission you believe you earned, you may have a potential wage claim. Pennsylvania’s Wage Payment and Collection Law provides a legal mechanism for employees to pursue wages they are owed. The Pennsylvania Department of Labor & Industry also accepts wage payment and collection complaints.
Depending on the circumstances, an employee may potentially seek unpaid wages and other relief available under Pennsylvania law. A dispute over a commission can also involve the terms of an employment agreement or compensation plan, making the underlying documents especially important.
What Should You Do If Your Employer Withholds Your Commission?
If you believe you are owed a commission, start by collecting documentation.
Keep copies of:
- Your employment agreement
- Commission plans
- Compensation schedules
- Offer letters
- Employee handbooks
- Pay stubs
- Sales records
- Customer contracts
- Emails about commissions
- Text messages with supervisors
- Records showing when sales were completed
- Documents showing when customers paid
- Any written explanation for withholding your commission
You should also document when you earned the commission according to the terms of the compensation plan. If possible, avoid relying on verbal explanations alone. Written documentation can be particularly valuable if a dispute develops.
Does It Matter Whether You Quit or Were Fired?
It can. Although an employee’s departure does not automatically determine whether a commission is owed, the circumstances surrounding the end of employment may affect the dispute.
For example, consider these two situations:
Employee A quits:
Employee A completes a sale and satisfies every requirement for earning a commission. They resign before the commission’s regular payment date.
Employee B is fired:
Employee B completes a sale but is terminated before the customer pays the company.
The legal analysis could be different in each case because the commission may have reached a different stage of the earning process. Your employer’s commission agreement may also contain different rules for resignation and termination.
What If Your Employer Says the Commission Was Never Earned?
This is often the central issue in a commission dispute.
An employer may argue that a commission was not earned because:
- The customer had not paid
- The sale was canceled
- The contract was not finalized
- The employee had not completed all required work
- The transaction had not been approved
- The employee was no longer employed
- A return or cancellation period had not expired
- The employee did not meet a performance requirement
The employee may disagree and argue that all conditions required to earn the commission had already been satisfied. When the parties disagree, the language of the commission agreement can become critical.
What If My Employer Says Commissions Are Discretionary?
Some compensation plans use terms such as “discretionary,” “bonus,” or “incentive compensation.”
The label alone may not resolve the issue.
The actual language of the compensation plan and the circumstances under which the compensation was promised can matter when determining whether compensation is owed. If you were promised a commission based on specific performance requirements and you satisfied those requirements, it may be worth having the agreement reviewed rather than assuming the payment is simply discretionary.
Can an Employer Deduct or Charge Back a Commission?
Some commission plans contain charge-back provisions. For example, an employer might provide a commission when a sale is made but later reduce or reverse the commission if:
- The customer cancels
- The customer returns the product
- The customer fails to pay
- The transaction is refunded
- The contract is terminated
Whether a particular charge-back is permissible depends on the compensation arrangement and applicable law. If your employer deducts a previously paid commission from your paycheck, that may raise additional wage-law questions.
How Long Do You Have to Claim Unpaid Commissions in Pennsylvania?
If you believe you are owed unpaid commissions, it is important not to wait unnecessarily. Different legal claims can have different deadlines, and the applicable deadline can depend on the legal theory involved.
The Pennsylvania Wage Payment and Collection Law, for example, has its own requirements and limitations. Other potential claims arising from an employment agreement may involve different rules. Because missing a filing deadline can affect your ability to pursue a claim, employees with significant unpaid commissions should consider speaking with an attorney promptly.
Can You Sue Your Employer for Unpaid Commissions in Pennsylvania?
Potentially. If your employer refuses to pay commissions that you believe you earned, you may have several possible avenues depending on the facts.
A potential claim could involve:
- Pennsylvania’s Wage Payment and Collection Law
- A breach of an employment agreement
- A written commission agreement
- Other applicable wage or employment laws
The appropriate approach depends on the specific facts and documents involved.
What If You Are Still Working for the Company?
You do not necessarily have to wait until you leave your job to address an unpaid commission dispute.
If your employer is refusing to pay commissions you believe you have already earned, you can begin documenting the dispute while you are still employed. However, employees may have concerns about retaliation or jeopardizing their jobs. If you believe your employer is threatening, disciplining, demoting, or otherwise retaliating against you because you raised concerns about unpaid wages, document what happened and consider seeking legal advice.
What Happens to Your Commission If You Quit or Get Fired in Pennsylvania?
Quitting or being fired does not automatically mean that you lose commissions you have already earned. The key question is often whether the commission was actually earned under the terms of your compensation agreement.
Before assuming that a commission has been forfeited, review:
- Your employment agreement
- Your commission plan
- When the sale or transaction occurred
- When the commission became earned
- Whether the customer had paid
- Whether there were cancellation or charge-back provisions
- Whether the employer changed the compensation plan
- What the employer says about the unpaid commission
If you believe you earned a commission before leaving your job and your employer refuses to pay it, you may have legal options.
Talk to a Pennsylvania Employment Lawyer About Unpaid Commissions
Commission disputes can become complicated quickly, particularly when an employer and employee disagree about when a commission became earned.
If you quit your job or were fired and your employer is withholding commissions you believe you earned, Stark Law Group LLC can help you understand your rights and potential options. Our Pennsylvania employment lawyers can review your employment agreement, commission plan, payment records, and other relevant documents to help determine whether you may have a claim for unpaid wages or breach of contract.
Contact Stark Law Group LLC to discuss your employment-law concerns and learn more about your options.