Commission vs. Bonus

“I want to pay my employees a commission of $20 for every successful upsell of our products to a current client. How do I set that up?”

Your HR Survival Tip

Employees are often excited about an opportunity to earn extra money. Let’s first make sure you are using the correct terms and processes for it so you remain in compliance with California law.

In California, a commission is only available when the “salesperson” is actively involved in making and closing the sale and earning a percentage of the sale. You must have a written commission plan signed by each employee with specific details, in accordance with the law. In your case, commission is the wrong term for what you’ll pay.

Since your employees will earn a flat $20 for each upsell, this is considered a non-discretionary bonus. It’s non-discretionary because it is expected whenever they successfully upsell a client. It’s a bonus because it is a flat dollar amount instead of a percentage of the sale.

The only negative is, in CA, a non-discretionary bonus is subject to overtime for the period it covers. For example, if an employee’s bonuses are earned and paid each pay period, you would need to check if any overtime was worked that pay period and adjust the bonus accordingly. If the bonus was only paid quarterly, then you review any overtime worked in that quarter. This is one of California’s many special calculations. It’s not a difficult calculation; you just need to learn how to do it and to use it consistently.

Giving employees the opportunity to earn a little extra money can be a great motivator, in addition to helping your sales. However, since it is about money, you should create a simple written plan to ensure it is implemented and calculated correctly and everyone understands it. A good idea can fall flat if there are misunderstandings about the money or if it’s too complicated. Contact us if you want help with your plan.

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