Upper Saddle River, NJ -  - The New York Department of Labor recently passed an amendment to the Labor Law relative to sales personnel.  Effective October 16, 2007, employers are required to provide written terms of employment for commissioned salespeople or risk adverse impact of decisions rendered in any wage action brought against the employer.  In the absence of a written document setting forth the terms of employment of commissioned salespeople, the Department of Labor will rule in favor of the terms alleged by the salesperson bringing forth the complaint.  It is expected that this could have a potentially sizable negative financial impact on a company.

Under the terms of this legislation, the following information must be included in the written documentation:

1.      Method of calculation of wages, salary, commissions, draws against commissions and any other moneys earned;
2.      When a commission payment is considered “earned”;
3.      When a commission payment will be made to the salesperson;
4.      How often a recoverable draw will be reconciled;
5.      What commissions will be payable in the event of termination, and when they will be paid.

The goal behind any compensation program, but especially sales compensation programs, should be to drive the desired type of performance, and ultimately achieve four (4) key objectives, which can be summed up by the acronym “FARM”

Focus attention on desired activities;
Attract the qualified applicants;
Retain the experienced and highest performing personnel; and
Motivate them top perform at their maximum.

A considerable amount of effort is required in order to achieve these goals, meet various government regulations, and, at the same time, be simple enough to communicate to the affected salespersons, and be within the company’s ability to administer the pay program.  Unfortunately, many companies are not able to balance these different demands, and therefore their plans do not deliver the desired business results.  In an attempt to remedy this less than satisfactory situation, these sales compensation plans continually need to be revised.  This builds distrust among the sales staff, and can be a significant de-motivator, leaving the door open for mistakes and possibly illegal activities to occur.  

It is unfortunate that New York State felt that it was necessary to enact this legislation, but it apparently is a direct result of action to correct problems caused by companies that did not provide the basic information to their salespersons.  This amendment to the Labor Law will have serious implications for employers in New York, and should serve as a wake-up call to all employers, everywhere.  Don’t wait for complaints filed by salespeople, legal challenges to pay practices, or the adoption of new regulations -- now is the time to review your sales compensation programs to ensure that they meet the following standards:

A.      They are properly documented
B.     They are monitored to make sure they are achieving the desired objectives, and do not cause any unintended problems
C.     They provide a financial Win-Win situation for both the employee and the company
D.     The communications of sales activity and earnings is accurate and reported timely
E.      They meet legal requirements and best practices