What is the difference between “Commission” and “Bonus” Pay?

Aside from the hourly wages and salaries entitled to all California workers, commissions and bonuses are also considered compensation, under the state labor laws. Often than not, employees interchange commission and bonus. However, these two types of compensations are actually different in many ways. In fact, this is one question that is frequently asked to any California Wage Law Attorney.

For employees who understand these legal terms, they are most likely to uphold their rights and receive just compensation. But for the many unfortunate workers who lack knowledge of these forms of “wages,” they easily fall victim to unfair labor practice.

Thus, it is every employer’s responsibility to know the difference between commission and bonus.

Basically, commission is calculated based on the sales of an employee. For certain workers who are exempt from traditional wage and hour requirements, their salary may be solely based on an agreed upon percentage of their sale. Contrastingly, a bonus is awarded by an employer without regard to sales or performance, unless an agreement has been previously signed. The amount of bonus depends on the discretion of the employer and cannot be imposed.

Under state labor laws, exemption from traditional hourly rate and wages is applicable to all workers involved in the retail industry. Moreover, the Industrial and Welfare Commission Wage Order 7-2001 specifies that retail salespeople whose total earnings from sales commission are more than one-and-one-half times the minimum wage are qualified for this exemption.

Employees who are entitled to receive commissions must be mainly involved in selling a service or product. In addition, California wage law mandates that commission must be based on the selling price of the service or product. Employers who pay commissions not calculated as percentage, or impose fixed or ceiling amount for commission may be at risk for violation of the wage law. A California Wage Law Attorney can assist employees in filing claims for unpaid overtime, breaks and meals and necessary charges.

Sales or performance incentives that do not fall under the definition of commission are considered as bonuses. Although California the term “bonus” is barely discussed in the Labor Code, courts usually consider them as a form of compensation. There are two forms of bonuses that employers normally award. First is the Non-Discretionary Bonus which is included in calculating the regular rate of pay as well as overtime rate for nonexempt employees. Such bonuses are dependent on the hours worked, performance and production. Second is the Discretionary Bonus which is awarded as gifts for holiday and special occasions. Compared with non-discretionary bonus, these bonuses are not used in computing regular rate of pay and are subject to the employer’s decision.

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