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Wages: Commissions, Incentives and Bonuses

Indiana courts have defined a “wage” as compensation paid on a regular basis for work performed by the employee on an ongoing basis.  In general terms, compensation that is linked to the amount of work done by the employee constitutes a wage. Vacation pay constitutes deferred compensation that is earned as an employee works, so is a wage. Performance bonuses, awards, commissions, or incentive pay are wages because they are tied to an employee’s work. Profit sharing type bonuses are generally not wages because they are tied to the employer’s success and not the employee’s effort. Bonuses that are not directly related to the time that an employee works or which are dictated by the employer’s financial success generally do not constitute a wage. Severance pay is not typically a “wage” as it is not compensation for work performed.


Employers in Indiana are required to pay employees twice per month, if requested. Other states have different rules with regards to wage payments. Payment shall be made for all wages earned to a date not more than ten (10) business days prior to the date of payment. In Indiana, unpaid wages or compensation for terminated employees are due and payable on the next regular payday for the pay period in which separation occurred, provided that no agreement or published policy exists to the contrary. In California, wages are due the day of termination, so make sure that you understand your state laws with regards to wage payments at termination. Be aware that wage payment laws generally follow the state in which the employee lives and not the state where the company is headquartered.


Payment of commissions may create difficulties for employers as commissions are wages. Employers who do not have a written commission agreement with their employees or who have a poorly drafted policy can prove to be very costly. When an employer fails to make timely and proper payment of wages of any kind, the employer may face treble damages (10% penalty for each day late, up to double the amount owed), costs incurred by the employee to recover wages, reasonable attorney’s fees, and interest. As a general rule, an employee becomes entitled to a commission when an order is accepted by the employer, even when the employee is terminated prior to payment. The general rule may be altered by a written agreement by the parties or by the conduct of the parties which clearly defines a different event at which time commissions are earned, e.g. employer receives full payment, product or service delivery, etc. A terminated employee is not owed commissions for purchase orders received after separation. However, earned commissions must be paid upon termination. Employers should be aware of contracts that they may have with a client as commissions may continue long after an employee is terminated from employment or for the life of the deal. Again, make sure that you understand the wage payment laws for the states in which your employees live.


It is imperative that all commission, incentive and bonus plans be put in writing.  A properly worded plan or policy may save your company money in the long run. Remember that not having a well written plan requires that you pay out wages when earned. So, make sure that you include information such as: how commissions, incentives or bonuses will be calculated, which sales either by territory or customer will be awarded to the employee, what happens if there is a split commission, incentive or bonus situation, what happens if a client fails to make a payment on a sale, what happens in a return or credit situation, what goal(s) must be attained in order to receive an incentive, what date an employee should be employed through in order to get the wage, etc. Making sure that the written plan is simple and easy to understand is critical to its success. Make sure that the employees understand the rules of the game up front and it will help to limit your liability as an employer in the long run.


For additional information on what constitutes a wage in your state, or if your company needs assistance with writing a formal commission, incentive or bonus plan, please contact New Focus HR.



Written By: Kristen Shingleton, M.B.A., CCP

President, New Focus HR LLC


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New Focus HR is a human resources consulting and training company that services all organizations. Our expert team collaborates with businesses to attract, motivate, retrain and retain their biggest assets, employees. While engaged with an organization, our focus is to find solutions that improve the company’s internal HR-related practices while increasing results at the same time! Our focus. Your results.