A Question about Draw and Commissions

Today, I got the following question from a sales rep about the repayment of their draw.

I am paid a $2,000/month draw and required to sell $22,500 in services each month.  I am paid 15% commission on all sales.  This has been the case since I started 5 years ago.  I consistently meet and exceed my quota and am paid my commissions only but have $1000 taken from my check each month.  Is this legal???

I responded as follows.

From the information you have provided below, it’s unclear to me what is actually happening.  I’ll assume it’s one of the following scenarios:

  1. You have an outstanding draw amount that you are repaying.  Check your compensation agreement (I assume you have a written commission plan).  It should spell out how the draw is repaid and over what period. The company may have paid you a draw during your ramp-up period when sales were less than breakeven ($13,333 per mo.).  The company is now recovering a portion of the outstanding draw amount each month from your earned commissions. This is perfectly legal and common practice.
  2. You have no outstanding draw amount from prior months, however you continue to receive a draw each month.  In this case, your net commission check would be the total commission earned less the monthly draw.  For instance, if you sold $22,500 this month, the commission check would be $3375 ($22,500 x 0.15) minus $2000 (monthly draw paid) for a net commission check of $1375 (less benefits and taxes).  This is also legal and common practice.

You should receive a commission statement with each commission check that explains how the commission was calculated.  Most commission statements identify all your sales transactions individually, listing date, customer and net revenue generated.  It should also list each and all deductions or offsets, including sales reversals (returns), discounts, draw recovery, tax withholding, and benefits deductions (i.e., health insurance, health savings accounts, 401K contributions, etc.). I recommend that you speak with your sales manager and review your commission statement.  Ask about anything you don’t understand.  If your manager does not know the answers to your questions, ask him or her to find out the answers or introduce you to the person who can answer your questions.  Everything about your earnings and commissions should be transparent to you.

If after speaking with your sales manager and appropriate senior managers (VP Sales, Head of Human Resources, Finance Manager, company President), you still think you are not being paid correctly, consult with your accountant and then a labor or employment attorney.  They may be able to explain the process more clearly or initiate legal steps if warranted.

 

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