Companies with employees in California who are paid on commission should be aware of a new law requiring commission agreements to be in writing.  As we’ve blogged about previously, California AB 1396 was enacted last year with a deferred effective date of January 1, 2013.  That deadline is now coming up quickly, and affected employers should therefore begin to prepare for compliance.

The new law requires all contracts for employment involving commissions as a method of payment to be in writing and to set forth a method by which the commissions are required to be computed and paid. The employee must be given a signed copy of the agreement, and the employer must obtain a signed receipt from the employee. If the contract expires and the parties continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.

California law defines commission wages as compensation paid for services rendered in the sale of the employer’s property or services and based proportionately on the price of the service or product sold. The definition of “commissions” does not include short-term productivity bonuses such as those paid to retail clerks, and it does not include bonus and profit-sharing plans unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

With the January 1, 2013 effective date of AB 1396 fast approaching, now is the time to ensure that agreements and procedures that comply with the new requirements are in place with respect to each of your commissioned employees in California.