By Ryan Danz, Founding Attorney, Employer Guidance Group PC
Disclaimer: This article is general information about California law — not legal advice, and not a substitute for having counsel review your specific policies. Reading it does not create an attorney-client relationship. Employment law changes frequently; consult a licensed California employment attorney about your situation before acting.
Short answer first: yes. If you pay anyone working in California on commission, you need a signed written agreement and a signed receipt in your file. Most small companies have something — an offer letter that says "10% of sales," a spreadsheet emailed around each January. Few of those documents answer the first question in any commission dispute: when, exactly, is a commission earned?
The written agreement is where you answer it — or where you leave the answer to a judge.
Do You Need a Written Commission Agreement in California?
Labor Code § 2751 applies whenever an employer contracts with an employee for work performed in California and the planned method of pay involves commissions. The rule has applied to every employer, in-state or not, since January 1, 2013. The statute requires three things:
- A writing that sets out how commissions are computed and how they are paid.
- A signed copy delivered to the employee.
- A signed receipt from the employee, which you keep.
There is a fourth rule that catches people later. If the plan expires and everyone keeps working under it, the old terms are presumed to stay in force until a new agreement replaces them or employment ends. A lapsed 2024 plan is still your 2026 plan if you never replaced it in writing.
What Counts as a "Commission" — and What Doesn't
Section 2751 borrows its definition from Labor Code § 204.1: pay for selling the employer's goods or services, calculated in proportion to the amount or value of what was sold. The statute then carves out three categories for § 2751 purposes only.
| Pay type | Written § 2751 agreement required? |
|---|---|
| Percentage of sales or revenue for selling your product or service | Yes |
| Short-term productivity bonuses of the kind paid to retail clerks | No |
| Temporary, variable incentives that can raise but never lower pay under the written contract (a one-month sales contest, for example) | No |
| Bonus or profit-sharing plans | No — unless you offered a fixed percentage of sales or profits as pay for the work |
Note that an exclusion from § 2751 is not an exclusion from everything else. Commissions and most nondiscretionary bonuses still go into the overtime regular rate — see our post on how to include a bonus in overtime pay in California.
When Is a Commission "Earned"? The Clause That Decides the Dispute
Section 2751 requires you to describe how commissions are computed and paid. It does not say when one is earned. That is a contract question: on signing, on invoice, on customer payment, or after the customer keeps the product past a set period. Pick one. Write it down. Apply it consistently. Under Civil Code § 1654, contract language left uncertain is read against the party who caused the uncertainty — usually the employer who wrote the plan.
The timing choice also controls what you owe at separation. Commissions that have been earned and can be calculated are wages, and they are due on the final-pay timeline. Our post on how long you have to give a final paycheck in California covers the deadlines and the 30-day waiting-time penalty exposure.
Commission Advances and Chargebacks in California
Paying before a deal is final — before the customer pays or a cancellation window closes — works in California only if the plan sets it up as an advance.
In Steinhebel v. Los Angeles Times Communications, LLC (Cal. Ct. App., 2d Dist., No. B172415, Feb. 7, 2005), the court upheld a plan that paid commissions up front on new subscriptions, with a written condition that the customer keep the subscription for 28 days. Because the commission was not earned until that condition was met, the up-front payment was an advance and not yet a wage. Recovering it from future advances when a subscription cancelled did not violate Labor Code § 221's ban on taking back paid wages. It also did not trigger waiting-time penalties.
The flip side matters more. Once a commission is earned under your plan's own terms, it is a wage. Clawing it back is the § 221 problem Steinhebel avoided. So the chargeback right has to be written into the plan, tied to an unmet condition, and agreed to before the sale. It cannot be announced after a deal goes bad.
| Plan language | How it likely reads |
|---|---|
| "Commission paid at signing; advance against commission earned when customer pays in full; unearned advances offset against future advances" | Advance and chargeback structure — the Steinhebel model |
| "Commission paid at signing" with no condition, then a later deduction when the customer cancels | Earned wage, then a deduction — § 221 risk |
| Chargeback taken from final wages after separation, not in the written plan | High risk on both § 221 and final-pay penalties |
What Happens If You Don't Have One
Section 2751 sets no penalty of its own. The practical damage comes two ways. Without a writing, you have no document proving the terms you meant — earned-at-payment, chargebacks, caps, territory rules — and the dispute turns on competing memories of an oral deal. And a missing or unsigned plan is easy to add to a Private Attorneys General Act notice, where the default civil penalty applies per employee, per pay period. Our guide to avoiding PAGA penalties explains how those numbers stack.
The steps below are general information, not legal advice. Have counsel tailor them to your workforce and practices before you act.
Commission Plan Checklist for California Employers
- List everyone in California paid any commission — including part-time sales staff and remote employees of out-of-state companies.
- Confirm a current, written plan exists for each, with a signed copy delivered and a signed receipt on file.
- Define the earning event in one sentence (signing, invoice, payment, or a retention period).
- If you pay early, call it an advance and spell out the condition and the chargeback right before the sale happens.
- State the rate, base, timing of payment, and what happens to pending deals at separation.
- Re-sign at every change and at every renewal. Don't let an expired plan quietly roll over.
Get Your Commission Plan Reviewed
A commission plan is usually a few pages long, and it is usually the central document in a commission dispute. Employer Guidance Group drafts and audits commission plans for California employers. See our wage and hour practice, our compliance audits, and our PAGA defense work, or contact us to have your current plan reviewed before the next quarter's payout.
Disclaimer
This article is general information about California law. It is not legal advice, and reading it does not create an attorney-client relationship. Employer Guidance Group PC is not your attorney unless and until you have signed a written engagement agreement with the firm.
California employment law changes constantly. The information here may be incomplete, out of date, unverified, or incorrect, and it does not account for your specific facts — and outcomes turn on facts. Do not act, or refrain from acting, on the basis of this article. Consult a licensed attorney about your own situation before making any employment decision.
This communication may constitute attorney advertising. Prior results do not guarantee a similar outcome.