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A commission agreement decides how much of your income you actually keep. Before you sign one in New York, look closely at five things: when a commission becomes earned, how it is calculated, when it has to be paid, how draws work, and what your employer can take back. New York Labor Law requires these terms to be in writing, and it gives you real protection once a commission is earned.
What Does New York Law Require a Commission Agreement to Include?
New York does not leave commission terms to a handshake. Under state law, the agreed terms of employment for a commission salesperson must be put in writing, signed by both you and your employer, and kept on file for at least three years.
That writing has to describe how your wages, salary, drawing account, commissions, and all other money earned and payable will be calculated. If it provides for a recoverable draw, it must state how often the draw is reconciled. It also has to specify what happens to that compensation if either party terminates the employment relationship.
One detail catches people off guard. The writing requirement covers employees whose principal activity is selling. It does not cover employees whose principal activity is supervisory, managerial, executive, or administrative. Sales managers often fall outside the definition, though they keep other wage protections under the Labor Law.
Before you sign, read these provisions twice:
- The commission rate and the formula used to calculate it
- The specific event that makes a commission earned
- Payment dates and any conditions attached to them
- Draws and how often they are reconciled
- Chargebacks, cancellations, and customer nonpayment
- Commission rights after resignation or termination
When Is a Commission Considered Earned in New York?
This is usually the most important provision in the agreement, because “earned” is the word that turns your commission into wages.
New York applies a three-step rule. A commission is earned at the time your written agreement specifies. If the agreement is silent, past dealings between you and your employer control. If there are no past dealings either, the default rule applies, and the commission is earned when you produce a buyer who is ready, willing, and able to enter a contract on your employer’s terms.
Consider a salesperson who closes a major deal in September, but the customer does not pay until November. If she resigns in October, whether she is owed the commission turns first on how the agreement defines earning. If the agreement says nothing, the default rule usually favors her, because she already produced the buyer.
Keep earning separate from the payment date. Compensation can be fully earned even though the check is not scheduled until later.
How Should the Payout Terms Be Written?
Your agreement may base commissions on gross sales, net revenue, profit margin, collected revenue, or another formula. You should be able to read it and calculate your own paycheck. Ask what gets subtracted before your percentage is applied.
Timing is regulated rather than negotiable. A commission salesperson must be paid at least once each month, and no later than the last day of the month following the month in which the commission was earned. Employers may pay additional compensation such as bonuses or incentive earnings less frequently, but only when the regular monthly payments are substantial.
Watch for language that delays payment until the customer pays. That clause works only if it delays the point at which the commission becomes earned. Once a commission is earned, your employer cannot hold it indefinitely.
Can Your Employer Take Back a Commission You Already Earned?
Generally, no. Once a commission is earned, it is wages, and New York allows only a narrow set of deductions from wages: those required by law or regulation, and a limited list of items you authorized in writing for your own benefit, such as insurance premiums or union dues. The law also bars your employer from charging anything against your wages that would not be a lawful deduction. A customer cancellation is not on that list.
Employers who want chargebacks usually get there a different way. New York’s highest court has held that an employer and an employee may structure the compensation formula so that a commission is not earned until specified adjustments are taken. That is why the definition of “earned” matters more than the section labeled “chargebacks.”
So when you see a broad clause letting your employer reverse commissions at its discretion, look at where the agreement places the earning point. A clause that reaches money already earned may not be enforceable.
What Happens to a Draw Against Commissions?
Draws are a frequent source of disputes, and the New York rules favor employees. A draw can only be reconciled against future commissions. It cannot be recouped from your other earnings, and doing so is an unlawful wage deduction.
You also cannot be forced to repay a draw unless your written agreement specifically says the draw is recoverable and states how often reconciliation happens. Without that language, the money is generally yours to keep. Employees who leave usually cannot be required to pay back this kind of draw.
What Happens to Commissions When Employment Ends?
Every commission you earned before your last day counts as wages, and your employer must pay it even though the relationship ended. Commissions that have not yet been earned are governed by your agreement, which must address this situation.
That is why the timing of your departure matters. Leaving a few weeks earlier or later can move a deal from one side of the earning line to the other. Review these provisions before you give notice, and check whether termination for cause, resignation, or a layoff changes the outcome.
Can Your Employer Change the Commission Plan?
Your employer can generally change compensation going forward. It cannot rewrite the rules for money you already earned.
New York also requires written notice of changes to your rate of pay and the basis for it, including commission arrangements, at least seven calendar days before the change takes effect, unless the change appears on your wage statement. If a new plan shows up, save both versions along with the effective date. Hold on to your emails, sales records, account information, pay statements, and past commission calculations as well.
What Can You Recover If Your Employer Refuses to Pay?
More than the unpaid commission. An employee who prevails on a wage claim in New York recovers the full underpayment, reasonable attorney’s fees, and prejudgment interest, plus liquidated damages equal to 100 percent of the wages owed unless the employer proves it had a good faith basis to believe it was following the law. A claim can reach back six years, which matters when a commission dispute has been building quietly for a long time.
Talk to a New York Commission Dispute Attorney
If a large share of your income depends on commissions, the terms controlling that money deserve a careful read. Lipsky Lowe represents commissioned employees throughout New York City and the surrounding area. Contact Lipsky Lowe for a confidential consultation before you sign an agreement, or if your employer is refusing to pay what you earned.