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Commissions: What Happens When You Leave?
No matter what profession you work in, you must presume that your commissions will be based only on monies actually received on or before the last day you worked, and you won't get a penny of commissions after you leave.
ACTUAL CASE HISTORY: Walter was a 41-year-old ophthalmologist who'd previously worked for a large New Jersey hospital for nine years. He'd recently moved on to open his own private practice. In his hospital job, he'd worked especially hard the last six months, so he'd have a cushion of extra income when he started his own practice. He came to us with a fairly common problem: after leaving his former job, he'd encountered difficulties getting paid the "commissions" the hospital owed him. Though he tried on his own to get the hospital to pay him, he now sought our help.
Walter's compensation arrangement with the hospital was a common combination of (a) base salary, and (b) a "bonus" comprised of a percentage of the money the hospital collected for his services. Though called a "productivity bonus," it was really a kind of commission, because it was based on a formula that paid him depending on own efforts. In resigning, Walter carefully complied with his initial agreement with the hospital that he would provide at least six months' written notice before leaving. Though since his leaving he'd written several letters requesting his commissions, he never received the money he felt was due.
In our investigations, we discovered the one big problem that we often see in commissions-based employment: Walter really didn't know the important details of his agreement with the hospital, especially about what was to happen when he leaves. He didn't know about what we call "the cruel clock of commissions."
Walter's agreement, set out in his initial "hiring letter," provided him a percentage of the monies "collected" by the hospital for his services, and not - as he erroneously thought - based on the number of patients he saw, or how many procedures he performed, or the amounts he "billed." In every business there's always a difference between the amount billed and the amount collected, just as there's always a time delay between "billing" and "collecting." The difference between "billing" and "collecting" almost made Walter bankrupt when he erroneously depended on this misunderstanding.
Unfortunately for him, it turned out that Walter's agreement with the hospital was based on "collections," and not "procedures performed," or "billings." Because of this, all of his extra hours and efforts during his last six months proved to be of no value to him: six months earlier, when Walter gave resignation notice, the hospital immediately stop billing Walter's patients for his services. Instead, they billed all his patients only after he left the job, making "collections" impossible until after his departure, and thus not to be shared at all with Walter. It turned out that the hospital did this with every doctor who resigned, thus keeping a good deal of "their" hard-earned money.
LESSON TO LEARN: No matter what industry or profession you work in, you must presume that (a) your commissions will be based only on monies actually received on or before the last day you worked, and (b) you won't get a penny of commissions after you leave. You will almost surely lose all future commissions when you leave your job, unless you get a clear agreement otherwise. Remember it as "The Cruel Clock of Commissions."
Whether you're a doctor or a dress saleswoman, a Wall Street trader or a door-to-door salesman, if your compensation is commission-based, when you leave the job, there's a critical difference between the varied times that you might be considered to have earned your commissions, as examples:
• Whether you were "on the job" when, and were responsible for, the efforts that brought the business or customer into the business;
• Whether you were "on the job" when, and were responsible for, the order being taken, or the trade "booked," or the actual deal closed;
• Whether you were "on the job" when, and were responsible for, the provision of the services, or the shipping of the goods, to the customer;
• Whether you were "on the job" when, and were responsible for, the customer's receipt of the goods or services;
• Whether you were "on the job" when, and were responsible for, the payment is received from the client or patient;
• Whether you were "on the job" when, and were responsible for, the time when the payment was considered "non-refundable";
• Whether you were "on the job" when, and were responsible for, the day your employer considers "reconciliation of accounts day."
• Whether you were "on the job" on some other date that your company considers "commissions-payment" or "bonus-payment" day.
These are but a few examples of the many possible "commissions cutoffs" of "The Cruel Clock of Commissions."
WHAT YOU CAN DO: While the law in your state may help you somewhat in this regard, don't count on it; most state laws aren't very helpful. Instead, take measures to protect yourself. These are some of the best things you can do to avoid "The Cruel Clock of Commissions":
• First and foremost, it's when you're about to be hired that you can establish your eventual "commissions cutoff" date. You have your greatest leverage in a new-job negotiation just before you agree to take the job. It's then - if ever - that a prospective boss will give in to reasonable requests. That is, get "clarity" and "commitment" early on.
• When it comes to "Earning" of commissions, think "E" for "Earned must be Earliest." That is, ask that you be considered to have earned commissions as early as possible in the timeline of your business activities, based on your efforts to take care of the customer, or pitch the deal, or whatever you do first to bring in revenue.
• When it comes to "Payments" of commissions, think "P" for "Payments until Posterity." That is, ask that you be entitled to commissions forever, so long as revenue is coming in that is derived, in whole or part, from your efforts. Just because the employment relationship is over doesn't mean the payments must stop. You might settle in between, say, being entitled to a commissions-income stream for 12 months after you leave.
• If you're already on the job, and don't have a clear commissions cutoff date with your employer, or if it's a "late" one, such as "collections" was in Walter's case, don't be afraid to ask for clarification or modification of your arrangement. It might be wise, though, to wait to ask for such a clarification or modification until you've been asked for something by your boss, such as a change in shift, or to take on a new responsibility, as a kind of reasonable "exchange." That's an example of what we call "Community" at work, that is, win-win solutions.
• No matter what your commissions arrangement is, you must know what it is, and how it operates. Don't let yourself get fooled, or let your employer manipulate you out of what you're honestly due. Carefully time your resignation and departure to ensure that you're not being taken advantage of in commissions.
• Finally and perhaps most important of all, confirm your understanding with your employer in writing, so that you have clarity and commitment of your commissions cutoff date. Who knows, your boss may leave the company, herself. Having something in writing would only help. While it would be nice to have a signed agreement, or letter, even a confirmatory email should help immeasurably later on if there's a dispute.
As Henry Ford said, "If you think you can, or you think you can't, either way... you're right." You can get a lot more out of your work if you're aware, and you ask. Surely, you'll get less if you're not aware, and don't ask.
Learn more about the author, Alan Sklover.
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