Colorado’s Division of Labor Standards and Statistics (DLSS), responsible for enforcing Colorado’s Wage Act, recently provided guidance on commissions/bonuses. Specifically, DLSS’s Interpretive Notice and Formal Opinion (INFO) #17 discusses commission/bonus agreements, when commissions/bonuses do or do not have to be paid, and what is owed when an employee leaves their position.
Commissions/bonuses must be paid if three factors are met. First, the commission or bonus must be earned, which means the employee has performed the work required to receive the commission or bonus. Second, the terms of the commission/bonus agreement have been met. Third, the commission or bonus is determinable, which means the dollar amount of the commission or bonus can be calculated.
The same factors are considered when an employee leaves their employment before the commission is paid. As the DLSS clarifies in the INFO, unless otherwise stated in an agreement, employees are likely to be owed commissions/bonuses post-termination. Therefore, the terms of a commission/bonus agreement with an employee are essential.
Employers and employees are free to decide on the terms and conditions for commissions/bonuses. Assuming those terms and conditions are not invalid (i.e., the employee agrees to give up their right under Colorado’s Wage Act), all terms and conditions must be met before the employer is required to pay the wages to the employee.
The DLSS’s example includes an agreement where the commission is earned when the employee (1) makes the sale and (2) collects the payment. If the employee leaves their employment before they collect the payment, the employer is not required to pay the commission as not all elements have been met. The example demonstrates the importance of employers having clear terms and conditions for when commissions/bonuses are earned by their employees.
If you have any questions about commission/bonus agreements or policies, contact Employers Council.
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