Total and Partial Unemployment TPU 460.2
Commissions are wages. Commissions are paid as remuneration for personal services and are specifically included in Section 926 of the Code.
To determine to what period of time commissions are allocated, it is necessary to decide what week the payment is made "with respect to."
Section 1252 reads in part:
"(a) An individual is ‘unemployed’ in any week in which he or she meets any of the following conditions: (1) Any week during which he or she performs no services and with respect to which no wages are payable to him or her."
Commissions are generally paid "with respect to" the period in which the sale or other transaction meriting commission is made. Therefore, to the extent possible, commissions are allocated on the same basis as hourly or weekly wages, that is, to the period in which the services were performed.
If the amount of a commission can be determined at that time, allocate to the period in which the services were fully performed, regardless of the period of time when they are earned according to the contract of hire, or the period of time in which they are paid.
In Benefit Decision 6585, the claimant accepted employment for a construction company on a commission basis. His duties were to appraise property owners to have a home or addition built on their property. If he recommended approval of the loan and the contract was signed, he was entitled to a commission of $50. These commissions were considered earned at the time of the sale, but were not payable until the transaction was recorded following title search and the processing of credit reports and loan papers.
The claimant terminated his employment with the company in December. The following January, February, and March, he received commissions on the transactions made by him prior to his termination.
The Board held that the claimant was not employed and not in receipt of wages during January, February, and March. In so holding, the Board said:
"While, in an appropriate case, it may be necessary to ascertain when wages are fully earned in order to determine when they are payable, it does not necessarily follow under section 1252 of the code that having determined that wages are payable during a particular week, they are payable with respect to that week . . . If the payment of wages was for the performance of services, consideration must be given to the time when the services were performed; and, under the usual employment contract, it will be found that the payment of wages with ‘with respect to’ the week or weeks in which the services were performed.
The claimant had fully performed all of his services in connection with each transaction when he submitted his report recommending approval of the loan. The amount he was entitled to receive for each approved appraisal was already determined. Under these facts, it seems clear that the commissions were fully earned at the time of the sale, but under the employment contract were not payable until the transaction was recorded. Even though not payable until that time, it is our opinion that they were payments for services which had already been fully performed and constituted wages payable ‘with respect to’ those weeks in which the services were performed."
Exceptions to the general rule of allocating commissions to the period when earned will occur when the following conditions exist:
- It would be impracticable or impossible to determine the precise period in which the services were fully performed, or
- The amount of the commission cannot be known until it is actually received.
If the period in which services were fully performed cannot be reasonably established or the amount of the commission cannot be determined until received, allocate to the week in which the commission is paid.
The following examples will help to clarify how certain types of commissions should be allocated.
A real estate salesman and the buyer come to terms and a contract is entered into. Payment of the commission is contingent upon the closing of escrow and determination by the broker as to the amount of the commission. Since it would be impracticable, if not impossible, to determine when services were performed in negotiating the sale, allocation to the period when actual services were performed is not feasible. The commission should be allocated to the week in which paid by the broker.
A real estate broker negotiates a sale and receives his commission upon the closing of escrow. Therefore a commission paid to a claimant who is a broker, should be allocated to the week in which escrow closed.
An insurance salesman sells a policy. His work is fully performed at the time of the sale, however, the amount of the commission is not computed until the company accepts the policy. Since he obviously cannot report the commission when it is earned, the commission is allocated to the week in which it is received. This is similar to the principle applicable to banquet waiters. (TPU 460.63)
A photography salesman makes a sale during the week ending February 12, which entitles him to an $80 commission. Since the services were fully performed at that time, the commission is allocated to the week ending February 12. His contract provides that he will receive an additional commission on reorders from accounts which he has initially obtained. In the last week of March, he receives a check for $50 with a statement indicating this is a commission for a reorder resulting from the sale during the week ending February 12. In this case the services performed in making the initial sale merely laid a foundation for possible additional compensation. However, the employer’s obligation to pay the claimant arose only on receipt of reorders allocable to his account. The $50 commission should be allocated to the week in which payment is received, not to the week ending February 12. This is much the same principle that is applicable to rerun payments. (TPU 460.6)
An interviewer for a private employment agency receives a monthly draw of $250 against commissions. Her commission is 40 percent of the placement fees for persons she places in employment. Commissions are computed at the end of the month and paid by the 15th of the following month. Upon layoff at the end of April, she files a claim for benefits beginning May 2. On May 15, she receives a check for $48 representing her commissions for placements made during the month of April. In this case, the employer’s obligations to pay the claimant is not dependent on any contingency, such as receipt of reorders or the reuse of a film. The claimant is merely receiving deferred payment for the same services which entitled her to the draw. The commission is allocated to the weeks in April during which the services were fully performed.
Self-employed persons who receive their "wages" in the form of commissions, report their net earnings just as for any other type of earnings. For example, the insurance agent uses his care and telephone in the course of his business. If it is determined that he is self-employed as an independent contractor, his business expense such as automobile and telephone costs is deductible from his gross income and he should report only his net income as earnings. But when it is determined that he is an employee, he should not deduct his car and telephone expenses when reporting earnings since these expenses are considered when the rate of commission is established.