What is Commission Pay? Collecting Commissions

Posted Jun 14, 2024 by


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What is Commission Pay?

Commission pay is a form of compensation based on the performance of an employee, typically in sales roles. It is often calculated as a percentage of the sales or deals closed by the employee. Unlike a fixed salary, commission pay provides an incentive for employees to increase their productivity and achieve higher sales. Understanding what commission pay is can help employees know their earning potential and structure their work to maximize their income.

When are commissions considered wages?

When your employment ends, are you entitled to collect any bonuses or commissions you earned? 

A recent case in Calgary, Alberta has given some clarification about when commissions will be considered ‘wages’ under Alberta’s Employment Standards Code

Background

The employer is a crude oil brokerage business that pays its Energy Brokers base salaries plus brokerage commissions, which make up the vast majority of their compensation. These commissions were paid on a quarterly basis, payable six weeks after the end of the applicable quarter. The quarterly commission payments were also subject to a 25% holdback, payable at year end.

Two brokers resigned in the middle of Q2, immediately after receiving their Q1 commissions. They filed an Employment Standards complaint seeking payment of the 25% hold back for their Q1 commissions and commissions for transactions brokered in Q2 before they resigned. 

The Decision

Following a decision in favour of the former employees, the employer appealed to the Appeal Body. The Appeal addressed whether the claimed amounts were “wages” under the Code.

The employer argued that the unpaid commissions were not “wages”, but were a discretionary bonus based on the employment agreement wording describing them as a “bonus, amount to be negotiated with Management”. Under the Employment Standards Code, discretionary bonuses are not “wages” and are not subject to the protections for “wages” under the Code. 

The Appeal Body disagreed with this argument, pointing out that the commissions were based on a fixed percentage formula and were paid on a consistent quarterly schedule, which falls within the definition of “wages”. This demonstrates how courts and tribunals will go beyond the words of an agreement and consider the actual practices. 

However, the Appeal Body found that “wages” are paid for work, which created a distinction between the 25% holdback and commissions for transactions brokered in the first half of Q2. 

  • 25% holdback: The Appeal Body found the former employees had worked all of Q1 and provided all services necessary. So the Appeal Body declared the 25% holdback as “wages” and ordered these amounts payable to the employees.
  • Q2 commissions: The Appeal Body determined the employees had not carried out all the duties of their role through the entire quarter and therefore hadn’t “earned” their commission, so these amounts were not “wages” and were not owed to the employees. 

The takeaways:

This may not be the last determination on this issue, but here are a couple lessons:

  • A commission that is based on a fixed formula and paid at regular intervals is not a discretionary bonus, even if that is how it is described in the employment contract.
  • When a commission corresponds with payment for a particular service, this payment will not be considered “wages” under the Code unless the service is fully delivered.

These learnings are dependent on the particulars of this specific case, so if your former employer is denying payment of a commission or bonus after the end of your employment, contact Cashion Legal for a consultation. We can help determine whether you have a case based on your specific circumstances. 

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