In 2011, the New Hampshire Department of Labor (DOL) awarded almost one million dollars to employees for violations of state wage and hour laws and claims for unpaid commissions and fringe benefits like vacation pay, holiday pay, and sick pay. For small businesses in New Hampshire, this is a significant and somewhat alarming amount. Even more troubling is that a review of written DOL decisions reveals that employers can avoid certain violations with a few simple changes to the way they operate their businesses. This is particularly true for decisions relating to unpaid commissions.
New Hampshire’s wage and hour statute requires employers to pay wages to employees when due and owing. Commissions are considered wages for purposes of this statute. Employers are also required by law to notify their employees in writing of their rate of pay and wage structure upon hiring, and inform employees in writing of any changes to these items prior to the effective date of the change.
While these statutory provisions appear straightforward, employers are still violating them. In a recent DOL decision, for example, an employer decreased its employees’ commission structure without putting the change in writing, citing a down economy and industry trends as justification. Another company legally changed the commission structure for some employees, and expected those changes to apply to a different employee without properly notifying this employee of the change. In both instances, the DOL found for the employee and awarded unpaid commissions. Simply put, tacit agreements, handshake deals, or simply citing to “how it’s done” at a company are not likely to hold up in proceedings before the DOL.
Employers also have trouble deciding whether to pay commissions to employees who leave the company or change positions within the company. A common example is the sales associate who secures a sale that is accepted by the company, but while the parties are finalizing the order, the associate either leaves the company or transfers to a new job internally, and the sale is finalized at a later time. Since the associate is no longer involved in the sale, the employer determines that he/she is not owed any commission. In this instance, the employer is wrong to deny the associate their commissions because of the general rule in New Hampshire that an employee is entitled to commission when the order is accepted by the employer. The only way to override this general rule is to have a clear written policy or practice of paying commissions at a different time. Absent any contrary agreement or practice, when the employer accepts the order, it must pay commissions to the relevant salesperson, even if that person has been terminated, resigned, or now works in a different department.
So what should employers do to avert these common pitfalls? For starters, upon hiring, employers should communicate every conceivable detail about the commission structure to their employees in writing. If an employer wants a commission structure where commissions are paid at some time other than acceptance by the employer, include that in the writing. If the structure changes during the course of employment, or the employee transfers to a job with a different structure, put these changes in writing and have the employee acknowledge the change with their signature.
It does not take a sophisticated human resources department to institute these changes. At the very least, employers should craft unambiguous written commission policies that employees will understand, and communicate changes to these policies consistently among all of their employees. Doing so can ultimately save employers the time, expense and aggravation of defending against claims for unpaid commissions before the DOL.
Nicholas Casolaro is an associate in the Litigation Department of the McLane Law Firm. He can be reached at (603) 628 -1246 or at [email protected]. The McLane Law Firm, the largest full-service law firm in the state of New Hampshire, with offices in Concord, Manchester and Portsmouth as well as Woburn, Massachusetts.