• Each state has its own laws regarding commission-based pay.commission image by Christopher Hall from Fotolia.com
  
  Paying employees on commission can be rewarding for both the employer and the employee. The salesperson (or other employee) is rewarded in direct proportion to the amount of income he generates for the business. The employer, in turn, is saved the expense of paying an employee until revenue is generated. Despite these advantages, the laws surrounding commission-based pay can be unclear. In addition to federal laws, such as the Fair Labor Standards Act (FLSA), Alabama has its own set of laws and regulations that affect commission-based pay. Consult an Alabama-licensed attorney regarding what laws apply to your individual situation.
  
  

Legal Definition (Alabama Code Section 8-24-1)

• The Alabama Code defines "commission" as a percentage of the amount of orders or sales paid to a salesperson by a principal. In Alabama, a principal is a business, manufacturer, importer or distributor who does all three of the following things: provides products for sale to consumers; hires salespeople to solicit and sell the products; and compensates those salespeople, either in full or in part, by paying them a commission. Home-based businesspeople are not considered commissioned sales representatives in Alabama.
  
  

Payment of Commission (Alabama Code Section 8-24-2:5)

• If a contract exists between a salesperson and a principal, it should spell out the terms of commission payment. If no contract exists between the parties, the standard practices of the company and local business customs should dictate when commissions are paid. If a salesperson quits or is terminated, all commission due on their last day of work is to be paid within thirty days. Any commission earned after the last day of work should be paid within 30 days of when that commission comes due. If a principal fails to pay an earned commission, they are liable for three times the unpaid amount, plus attorney fees and court costs.
  
  

Worker's Compensation for Commissioned Workers

• The Alabama Department of Industrial Relations handles worker's compensation cases for all employees in Alabama. However, commission-based salespeople should take note that case law in Alabama may disqualify them as "employees." This, in turn, could exclude them from worker's compensation coverage. Alabama has given the Department and the courts authority to determine whether someone is an employee on a case-by-case basis. Facts such as how much control a principal has over a salesperson's schedule and duties, as well as whether a salesperson works exclusively for one principal, can have a great impact in determining if a person will be considered an employee or not.