Can California Employers Withhold Earned Bonuses and Commissions?

Our experienced employment law attorneys at Kingsley & Kingsley are frequently asked if California employers can legally withhold an employee’s earned bonuses and commissions. In this blog, we will delve a little deeper into how commissions and bonuses work and what your rights as an employee are if your employer says you are not entitled to or attempts to withhold such earnings.

Employee Commission Laws in California

A commission is essentially a payment that a worker earns for completing a specific job. For example, employers can pay their workers a commission when they complete a sale. These types of commissions are often a percentage of a sale or contract. Employers use commission as an incentive to drive sales and keep their employees motivated. Some positions, especially in sales, are entirely based on commission. Others pay a salary in addition to a bonus and commissions.

Many states, including California, define commission as a form of wages. Under California law, any bonuses and commissions that an employee receives from their employer are considered earned wages. The law clearly states that employers, for the most part, cannot withhold or deduct wages that the employee already earned.

There are a few circumstances in which the employer may be able to deduct commissions. However, those conditions are limited by state law and must be clearly specified in the commission agreement.

Can an Employer Lower an Employee’s Commission Rate?

An employer can typically lower a worker's commission rate. But, the employer must also give notice of the rate change to the worker and apply it only toward future commissions, rather than retroactively to commissions an employee has already earned.

Here are examples of some situations where employers can deduct commissions when they are included in a commission agreement:

  • Commissions may be reduced when products are sold at discounted prices
  • Commissions may be lost if products are returned and/or the payment for the product is refunded to the customer
  • Commissions may be withheld for damage caused by a worker's deliberate, dishonest, or negligent acts
  • Commissions may be withheld for legal wage garnishments or payroll tax deductions.

There are also situations when employers are clearly prohibited from withholding commissions from employees.

California's employment laws prohibit employers from taking back the payment of commissions in certain situations including but not limited to:

  • Cash shortages
  • Loss of equipment or damaged property
  • Business losses that occur as a result of the employee's simple negligence, such as losing a piece of company-issued equipment
  • For general business expenses

These types of withholdings or deductions are not allowed, even if it's included in a written commission agreement and the employee signed off on it. Employers are also forbidden from taking away commission payments when it could potentially violate minimum wage laws.

If you have been fired or have quit your job, you can receive unpaid commissions after you have been fired or let go. Just like other wages, under California, unpaid commissions must be paid on the employee's final day on the job.

Is Withholding an Employee's Bonuses Illegal?

California law categorizes employee bonuses under two categories: discretionary and non-discretionary.

Discretionary bonuses are amounts paid as gifts during holidays and special occasions by the employer to the employee as a reward for good service. These are not contingent on performance, production, or efficiency. An example of this type of bonus is a Christmas bonus, which is handed out by the employer's choice.

Non-discretionary bonuses are "earned" bonuses given as part of a work-performance policy, an employment contract, obligation, or an understanding between the employer and employee.

All earned bonuses are treated as wages under California law. Bonuses also factor into overtime pay. The California Division of Labor Standards Enforcement (DLSE) requires that an employee's overtime is calculated and paid on their regular rate of pay. This rate equals an employee's base salary in addition to non-discretionary bonuses. Therefore, bonuses make your overtime pay higher as well.

Because your earned bonus is part of your wages, it is important that they are paid in a timely manner. Your bonus should also appear on your pay statement and is subject to taxes. Just like commissions, bonuses are protected even if you are terminated. You are entitled to payment of your earned bonuses at the time you are fired, let go or quit your job. Employers are required to pay all unpaid wages including unpaid bonuses, within 72 hours of the employee's last day.

Our Wage & Hour Attorneys Can Assist You Today

If your employer has illegally withheld commissions or bonuses from you or has violated your commission agreement, it would be in your best interest to speak with an experienced Los Angeles employment lawyer who can help you recover damages, including the unpaid commission and back pay you've earned, attorney's fees, court costs and liquidated damages, which can double the back pay.

Please call Kingsley & Kingsley at (818) 239-7030 to schedule your free initial consultation to obtain more information about pursuing your legal rights. You can also contact us online to set up an appointment.