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I recently had an employee leave my company and he is still due half his commission check for a placement. What is the industry standard on paying out the remaining commission if an employee leaves? PLEASE ADVISE!
I would guess legally the answer is yes. Industry standard, I would say the answer is yes. Ethically, my answer would be yes. Why would you not pay it? Even if they left on "bad terms", they already earned it.
This hits home for me for several reasons I won't go into right now. Not that I'm an expert but I know a little something about this stuff...let's just put it that way. I've spent thousands of hours on this subject and you are not going to get the answer you want here. What you need is a serious sit down discussion with an attorney. However, let me give you some overview based on my experience. Please check my linkedin profile and you'll notice something that might clue you in as to what I may or may not know about this subject.
Some high level overview:
1. First, your state's law is the ultimate authority, period, unless your "employee" was in a different state. Than the waters get muddied a bit.
2. Next, depends on what "arrangements", written or oral you had with this person. Obviously, written contracts are king. This has to do with contract laws in your state and more specifically employment law.
3. Once you know your state's laws for contracts and employees, was he/she really an "employee" by legal standards or an "independent contractor"? Two completely set of rules apply.
The major determining factor include "control" over this person's daily conduct. Did you pay them a base salary? Were you responsible for benefits, did you provide equipment such as a computer and a desk? Did you "manage" this person's daily affairs? Etc... you know what I mean. The more of those you did, the more likely he/she is an employee. The only reason making this distinction is important again is so you know which set of rules apply. The last thing you want to do is apply the wrong rules to a situation / case which doesn't use them.
So here's the practical side:
Once you've established he was truly an employee, it all goes down to what your contract states. The terms and arrangements specifically outlined that you OBVIOUSLY had him/her sign. If your terms were ambiguous or you didn't address these terms, then to your point, "industry standards" could be a fall back. Not to rebut Amber's point but the legal answer is not an automatic "yes". I have seen written into contracts that employers make prospective employees sign that specifically states they will not pay commissions for employees who leave. They must be a "current" employee to receive any payments. I am guessing you have no such verbiage otherwise you wouldn't be asking this question Gabriel which leads me to my conclusion.
To start off, you likely don't owe any money, unless you had a contract that stated as such.
Not paying becomes even more of a solid argument if you paid a base salary and benefits.
If neither of the above are true and he/she was an independent contractor, you may owe the money.
However, it depends on a lot of little factors.
Also, even if you do owe the money, its sort of on them to chase you down to get it.
Finally, the legal and factual aspects can be determined over a detailed discussion with an attorney. However, you have a moral question that nobody can answer. In your heart of hearts do you believe you owe the money? Only you know the answer and its nobody's business either way. If you paid a base salary you might say he got compensated for his time already and he left you hanging when he left. If you did not pay a base salary and this was a full-time commission only contractor than that's another story right?
You make the choice.
Good luck either way.
I know from experience this is not an easy decision. When I say experience I mean a trifecta of academic knowledge, being on the employee/independent contractor side of it and the employer side of it.
Joshua made great points, and some of my thoughts on the "legal" part were based on my own past experiences working in a field that was base and commission. Of course, it was a large corporation and they had clear rules on what employees were entitled to be paid in the way of commissions and/or bonuses based on when those monies were earned and when the employee left. And also factored in were the reason for seperation. In cases of fraud, theft, etc. there were different rules. Employees quitting or being let go for performance issues were a different set of rules.
What is the reason you are considering not paying this person?
Said employee did do his job, but towards the end he was always calling in sick, never here, milked all his vacation and sick pay. Basically taking advantage of me and the company, knowing he was going to quit. Then he put in his resignation saying he wasn't making enough money...but how do you make money when you only work half the time?!?! He gave a 6 week notice before he left, but it was only to milk the company for more money and get his remaining commission. I do pay salary, no benefits, but I only require 32 hours a week of office time. Some of the agencies I know do not pay commissions if you leave the company for any reason and this is my first experience with this situation.
I would pay him and move on.
Gabriel - I have to start that I think your situation merits a thorough investigation. How much time, energy and money are you willing to spend to get the "right" set of solid answers based on concrete laws that actually apply? There are much more details and facts that need to be known to give you a real solution.
Anyway, taking everything you say at face value as 100% true (which is unlikely because there are always 2 sides to every story), here is how I would approach it if I were you.
1. Write into your contracts today for all of your present employees and those in the future how this matter is to be handled. Have everyone read it and sign it. Specifically, no commission unless you are a current employee. Define employee and commission specifically.
2. Don't pay this leech. If he's serious he will sue you in small claims. Be prepared. If what you are saying is true, than you have a good case. At the very least you will pay a reduced sum less than what he is looking for. If he wins than so be it. It will be because you had fault and it will be a lesson learned. Also at the very least he might settle for less instead of flipping a coin in front of the judge.
3. I agree and disagree with Sandra. He is not using his earned vacation and sick time appropriately. He is "milking" the system. He is conducting fraud. He shows bad faith. He intends to leave and just receive pay checks from you for not working but merely showing up. You're not the welfare system. All that talk about paying commission is out of her specific good will and personal decision. Because she pays out from her heart does not mean you have to. Feelings have nothing to do with business decisions. However, the best point in all this is why the heck DID YOU allow this employee a 6 week notice? That's purely on you. To her point, you could have just released him immediately....which is what I would have done. That one little detail alone kind of kills everything that you had going for you not to pay him.
Plus you said you owe "half" his commission - assuming he's been paid half for whatever deal this is regarding? Very tricky waters... Unless there would be some crazy financial burden to your company by paying him what he has apparently earned, I wouldn't risk it. Give him his money and learn your lesson. You honored the 6 wk notice. I've never heard of such a thing in sales...
Joshua seems pretty knowledgeable on the legalities, but I would imagine small claims court is the least of your worries. How big is your network? How do you know this guy won't be running around talking badly about the company that didn't pay him money owed? How will that affect your business or ability to recruit great recruiters? These are all things you should consider
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