Do Your Employees Know When Their Commissions and Bonuses are Earned? Dealing with Minnesotas New Wage Theft Statute
As we discussed in prior posts (MinnesotasNew Wage Theft Law: Are You Prepared? and Minneapolis Wants a Piece of the Wage Theft Pie), Minnesotas 2019 legislature passed expansive new wage theft protections for employees. Most of the new laws provisions became effective July 1. The new criminal penalties for intentional wage theft are effective August 1. While the new law contains numerous significant changes to wage-related notice and recordkeeping requirements, payment of commissions and bonuses is also affected and deserves an employers close attention to achieve compliance without creating unnecessary burdens.
Bonuses are earnings, which the law dictates be paid at least every 31 days. For commissions, the new law provides that all commissions earned by an employee must be paid at least once every three months. Payment of commissions must be made on a regular payday designated in advance by the employer regardless of whether the employee requests payment at longer intervals. If commissions or bonuses are not paid within the required time from when they are earned, the Minnesota Commissioner of Labor and Industry may serve a demand for payment on behalf of the employee. If an earned bonus or commission is not paid within 10 days of the Commissioners demand, the MN Department of Labor and Industry may charge and collect the bonus or commission, along with a substantial penalty for each day beyond the 10-day limit.
Given the new laws incorporation of bonuses into earnings and its focus on earned commissions, it is more important than ever for employers to carefully and clearly define how and when bonuses and commissions are earned. Notably, the new laws commissions provisions have sometimes been misinterpreted as requiring employers to simply adopt a maximum three-month schedule for payment of all commissions. The actual payment timing requirement, however, is based on when a commission is earned. In contrast to hourly or salary-based wages, which are legally earned immediately upon performance of compensable work, employers are free to create their own parameters for how and when commissions and bonuses are earned. But as always, with freedom comes responsibility. Employers should use this freedom to clearly document and have employees acknowledge in writing the applicable formulae for calculating bonuses and commissions, making clear how they are earned, in what amounts and subject to what conditions; and perhaps most importantly, when the earning actually occurs. Many employers require, for example, that revenue for triggering events actually be received before a commission or bonus is earned. Others may use the invoicing of a customer as the commissions trigger, sometimes subject to reduction for returned or unpaid sales or services. An employers options on these things are really quite open.
The most common cause of disputes (which are often very expensive) over commissions and bonuses is the failure to create good documentation in advance. The key to compliance for paying commissions and bonuses under the new Minnesota law, and to avoiding related disputes, is for an employer to clearly set forth in writing the exact point at which a commission or bonus will be earned, along with the formula for calculating the commissions and bonuses and any conditions or contingencies that may apply. Best practice is to then have the employee acknowledge that information in writing, and to retain the acknowledgement in a secure personnel file.
The employment lawyers of Gray Plant Mooty are experienced in these matters and ready to provide prompt compliance assistance to employers on commissions and bonus documentation as well as all requirements of the Minnesota Wage Theft law.