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New California rules for commission compensation contracts

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in Compensation and Benefits,Human Resources

A new law for 2013 requires Califor­nia employers that pay regular commissions to provide employees with a written contract detailing the formula for calculating commissions, as well as the method of payment.

Employers that fail to comply face fines of $100 per employee for first-time violators. Fines escalate to $200 per employee for subsequent violations. The fines will be collected under the Private Attorney General Act (PAGA).

Only regularly paid commissions fall under PAGA’s definition. The law specifically excludes:

  • Short-term productivity bonuses, such as those paid to retail clerks
  • Temporary incentives that increase commissions
  • Bonus or profit-sharing plans, unless they are based on a fixed percentage of sales or profits.

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