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How To Prevent Legal Challenges to Commissions

By June 3, 2020 No Comments

Between payment disputes, audits, and fair pay concerns, the way a sales organization manages commissions may expose them to costly legal challenges. That’s why it’s important to plan ahead, communicate commission plan details thoroughly, and be prepared to show the records when questions are asked.

Designing a commission plan gets complicated no matter what. But if it begins with a well-thought-out intention of how commissions will be distributed in a fair and understandable way, then you’re off to a good start.

Finance managers compare sales commission data for audit to prevent legal challenges.

Save yourself the pain, resources, money that you’ll pour into one of the below above issues; prepare, communicate, and look into how Core Commissions can help.

Thanks to our 15 years in the business, we’ve narrowed down a few things to keep in mind when first approaching or revisiting your commission plan. These items will prepare you to answer disputes, audits, or any other payment concerns from employees.

Keep It Simple and Make It Fair

Ensure that you can explain to a team how they can earn a commission and when they earn that commission. The simpler you can keep it the more likely it will be fair and give employees equal opportunity to earn. Try to keep exceptions to a minimum. And listen to your salespeople when they have feedback, ask questions, or share concerns. 

Be Transparent About Commission Pay

Set up a clear path for employees to discuss commissions with you openly. Document those conversations and provide a record of them for your employee too. Whether it’s notes or a transcript, it confirms that you’re both on the same page. Clearly define how commissions are calculated and when employees earn commissions. Communicate that repeatedly to your team at meetings, on calls, in memos, wherever you can drop it in.

Consider All Scenarios

There are a number of reasons that an employee may lose eligibility for a commission. An employee resigns or gets terminated before a portion of their commission is paid; an employee gets promoted to a non-commission eligible position after they make a sale. Prepare to handle these scenarios in a consistent manner and communicate those rules to employees when they’re hired and throughout their employment. In fact, detail those rules in their employment contract or agreement for reference at any time.

Federal or State Laws Impacting Commission Payments

Whether you have a sales team centered in one state or salespeople located across the country, you need to educate yourself on the laws that impact payment. 

Protect Accurate Data

Errors lead to missed or shorted payments which lead to disputes and challenges. Avoid that headache altogether by guaranteeing your data is correct at every level. With our reliable and powerful tools, you eliminate mistakes almost entirely so you can feel secure that you’ve got the most concrete data you’ll need. In fact, Core has a cycle “locking” function that let’s an administrator lock all the data and calculations for that cycle once the amounts are sent to payroll. Without that kind of protection, the risk of losing data grows.

Save Records for Review

If that dreaded audit comes up, make sure you’ve got your records and spreadsheets ready for review. Audits may be triggered by a payment dispute and you’ll need to provide lawyers and auditors access to that data. If you use Core, this is simple. You can drill down into your commission data as much or as little as you need. It can even be used to explore non-sales data if need be. We’ve talked about that recently too

Have the Data Readily Accessible

For any scenario that arises, having instant and immediate access to records will be key to a resolution. If you’re still working with a mess of spreadsheets, that could take hours or even days to parse through. On the other hand, if you’re working with Core, you’ll be able to aggregate the information you need in minutes. 

If a sales organization is properly prepared, legal issues will be a breeze. 

The three most common legal issues in commissions include:

  • Payment Disputes: Ensuring that employees fully understand how they earn commissions will help dissuade this issue. With Core, employees get direct access to the sales portal where they can educate themselves on how commission is distributed. It will eliminate unnecessary disputes.
  • Getting Audited: No one likes an audit. But if it happens, make sure you can produce the records. Having access to data through Core will ease the experience.
  • Equal Pay Challenges: Even if you’ve done your due diligence and detailed how commission can be earned fairly, there may still be challenges. Having the ability to pull records of payments and prove that commissions were distributed fairly may deflect most questions. Again, Core’s powerful reporting tools can lend a hand.

Finding yourself in the midst of one of these legal conflicts can be costly. But if you lose a case or fail an audit, the company may be looking at even steeper penalties. Not to mention that a contention with an employee can cause distrust among your team and scare off talent you’re working to recruit.

So save yourself the pain, resources, money that you’ll pour into one of the above issues; prepare, communicate, and look into how Core Commissions can help.

Want to learn more about how Core can help you manage and avoid legal issues with commissions? Drop us a line. We’ll be happy to walk you through the process.

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