The general rule is that California employers cannot take away wage payments.1 This includes sales commissions that have been earned.2
However, employers can carve out exceptions to this rule in the commission agreement, which is an employment contract. These exceptions in the employment agreement must be tied to the employee’s sales rather than general business expenses, and the employee must agree to them in the contract.3 Sometimes, those exceptions can be quite significant.
Standard sales commission deductions that are included in a commission agreement can be for:
- reductions in commission for selling products at a discount,
- loss of commission if the product is returned or the payment is refunded,
- offsets in future commission payments in exchange for advance payments before payday,
- damage caused by the worker’s deliberate, dishonest, or grossly negligent act,4
- legal wage garnishments, or
- payroll tax deductions.
These exceptions, however, must be clearly stated in the commission agreement.5 California requires the employee’s commission rates to be in
- a written contract, not
- an oral one.
In most cases, an employer may reduce a worker’s commission rate. However, the employer must give notice of the rate change, and apply it
- prospectively towards future commissions, rather than
- retroactively to commissions already earned.
When are employers not allowed to take them away?
The exceptions that the employer can make, however, are not limitless. California employment laws forbid employers from taking back the payment of commissions in certain circumstances, such as:
- cash shortages,
- loss of equipment or broken products,
- business losses resulting from the employee’s simple negligence, or
- general business expenses.6
These deductions are not allowed, even if the employer included them in a written agreement concerning commissions and the employee signed it.7
In any case, employers are not allowed to reduce commission payments when doing so would violate minimum wage laws.
What about the minimum wage?
American workers who are covered by the federal Fair Labor Standards Act (FLSA) or their state’s equivalent are entitled to earn at least the minimum wage.
The federal minimum wage in 2025 is $7.25. Meanwhile, California has a minimum wage of $16.50 per hour in 2025.
What is a sales commission?
A commission is a payment that an employee earns for completing a specific task. Employers can pay their workers a sales commission when the employee completes a sale on the employer’s behalf.
Sales commissions are often a percentage of a sale or contract, making them a common incentive for employers to drive sales.
Some positions, like those of an outside salesperson or sales representative, pay solely on a commission basis. Others pay a salary plus a bonus for earned commissions.
Many states define commission as a form of wages, including California.8 This provides additional legal protections for workers making a commission in a given pay period.
What if I was fired?
In California, commissions are classified as wages, and all wages generally must be paid on the employee’s final day on the job.9
In many cases, however, the commission calculation takes time. This is especially common when the commission is calculated based on “final” sales, which do not become final until the return period has expired. In these circumstances, the employer must pay the earned commission within a reasonable timeframe.
What can I do to recover commission payments that were taken from me?
If an employer takes back commission payments in violation of the law or the commission agreement, it can amount to
- a labor violation or
- a breach of contract.
Employees would do well to go to a law firm and speak with an employment attorney. If there was also a violation of the FLSA, the U.S. Department of Labor might get involved.
Victimized employees are often able to recover:
- the commission and back pay that they had earned,
- attorneys’ fees and court costs, and
- penalties and liquidated damages, which can double the back pay.
Additional Reading
For more in-depth information, refer to these scholarly articles:
- Substantive Pay Equality: Tips, Commissions, and How to Remedy the Pay Disparities They Inflict – Yale Law & Policy Review.
- Retail Workers’ Job Experiences: An Analysis of Emotional Labor, Commission Pay, and Stress – Texas State University.
- The symbolic meaning of pay contingencies – Human Resource Management Review.
- Performance pay and worker cooperation: Evidence from an artefactual field experiment – Journal of Economic Behavior & Organization.
- Creating unfairness by mandating fair procedures: the hidden hazards of a pay-for-performance plan – Human Resource Management Review.
Legal References:
- See California Labor Code 221.
- See California Labor Code 200(a).
- Marr v. Bank of America, NA (9th Cir. 2013) 506 F. App’x 661.
- Cal. Code Regs. tit. 8 11070(8).
- See Steinhebel v. Los Angeles Times Communications (Cal. Ct. App. 2005) 126 Cal.App.4th 696.
- See Sciborski v. Pacific Bell Directory (Cal. Ct. App. 2012) 205 Cal. App. 4th 1152.
- Hudgins v. Neiman Marcus Group, Inc. (Cal. Ct. App. 1995) 34 Cal. App. 4th 1109.
- California Labor Code 200(a).
- California Labor Code 201 and 227.3.
