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Paying salespeople commissions raises legal issues

Hubbard Snitchler & Parzianello

Auto dealerships in the Detroit area, as well as many other employers in the automobile industry, rely on a commission system to pay their sales employees.

They may even use commissions as the exclusive way for their sales employees to earn income. This usually is a mutually beneficial arrangement since the employee can to some extent control her own earnings and is incentivized to perform well.

However, when paying commissions, automobile industry employers need to be mindful of several laws.

Michigan law requires the timely payment of commissions

Michigan law requires that employers timely pay commissions to their sales professionals. The good news is that, generally, employers and employees are free to negotiate in a contract as to how commissions are paid.

However, the law will strictly hold the employer to the terms of that contract, including those provisions related to how commissions get calculated and when they are due. This is why it is so important that these contracts are drafted correctly and clearly cover all possible issues.

Once a sales employee leaves employment, an employer will have 45 days to settle up and pay any outstanding commission.

If they fail to do so, an employer can be liable to pay twice the commissions owing or $100,000. An employee may also recover his attorney fees.

Commissions can also raise questions about minimum wage and overtime

While commissioned sales employees may be exempt from overtime, employers will also need to be sure that they have their commission structure set up so that the employer can take advantage of this exemption if it is available.

They will also at a minimum have to keep careful records to show that their employees are getting the benefit of the federal and Michigan minimum wage.

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