Understanding the Legal Difference Between Commission and Bonus under Massachusetts Wage Laws
Commissions vs. BonusesWhen it comes to incentive pay, the terms "bonus" and "commission" are often used interchangeably, but the legal implications attached to each can significantly impact both employers and employees. It's crucial to grasp the distinction, particularly under Massachusetts Wage Laws, where the Massachusetts Wage Act extends its coverage to commissions but not to bonuses.
Implications Under the Massachusetts Wage ActThe primary legal disparity lies in how commissions and bonuses are treated under the Massachusetts Wage Act. Commissions fall under the Act's definition of "wages," providing significant implications for commission-based employees. A failure to fulfill a bonus promise is a contract breach, potentially challenging to prove and costly to recover.
Commissions, being categorized as wages, invoke remedies under the Massachusetts Wage Act. Non-payment or delayed payment can trigger provisions for triple damages and the recovery of attorney fees, ensuring legal protection for employees. Commission vs. Bonus: Unraveling the TermsCalculation Determines Classification: The classification of an incentive payment hinges on its calculation method, not its nomenclature. Payments based on an individual's contribution to revenue are generally considered commissions, while those tied to overall profitability or division-wide performance are labeled bonuses.
Varied Forms of Commissions: Commissions, as defined by the Wage Act, encompass diverse structures. Whether percentage-based or flat-rate, the critical factor is individual contribution. For instance, service professionals earning based on sessions or a percentage of client revenue fall under the commission definition. Examples of Incentive Pay that Should be Considered CommissionsSales Commissions: Calculated as a percentage of revenue or "gross margin." For instance, a salesperson earning a percentage of each sale is receiving a commission.
Sales or Lead Generation Commissions: Based on an individual's contribution to the prospect pool. Even if the person is not the one closing the sale, as long as the incentive is based on that individual’s contribution to the prospect pool, it's considered a commission. Service Commissions: Common in industries like hair salons, where compensation ties to individuals served. This also occurs in the professional services area. For example, a service professional might earn a flat amount per session or per client served, or a percentage of the revenue received from that client. Both structures should fall under the definition of commissions according to the Wage Act. |
We're Here to Help.OR
|
Examples of Incentive Pay that Should be Considered Bonuses
Year-End Discretionary Bonus: Determined by tangible and intangible factors. For example, a bonus could be based on good performance reviews, company or division profitability, or achievement of specific goals.
Periodic Profit Sharing: Tied to overall company or division profit, not individual performance.
Periodic Profit Sharing: Tied to overall company or division profit, not individual performance.
Gray Areas and Complex Structures
Management by Objective (MBO) Target Incentives: Blending individual and group metrics, MBO incentives may blur the line between commission and bonus. Careful examination is needed to determine classification.
Supervisory Roles and Sales Performance Incentives: Incentives tied to the sales performance of subordinates may require careful examination for classification.
Supervisory Roles and Sales Performance Incentives: Incentives tied to the sales performance of subordinates may require careful examination for classification.
Conclusion
In the dynamic realm of employment incentives, discerning the legal disparities between commissions and bonuses is paramount. This understanding safeguards employee rights and empowers employers to structure compensation plans in harmony with Massachusetts Wage Laws. Whether you're an employee seeking clarity on entitlements or an employer crafting incentive structures, awareness of these legal nuances is vital for navigating Massachusetts employment laws effectively.
Meet Our Employment Lawyers
Emily Smith-Lee is the owner and founder of slnlaw. She is a 1996 graduate of Boston College Law School. She was previously a partner at the Boston office of a large international firm, where she worked for thirteen years before starting the firm that became slnlaw in 2009. She has been recognized as a Massachusetts Superlawyer each year since 2013, and in 2018 earned recognition as one of Massachusetts Lawyers Weekly's Lawyers of the Year. She has written a book on employment law: Rules of the Road, What You Need to Know About Employment Laws in Massachusetts, and helped thousands of clients on both the employee and employer side with issues relating to wage and hour laws, including overtime pay, late or unpaid wages or commissions, employee misclassification, and retaliation against employees asserting rights under the wage and hour laws.
Rebecca Rogers: Rebecca is a 2006 graduate of Boston College Law School, and has worked with slnlaw since 2013. She previously worked as an intellectual property litigation attorney for Fish & Richardson in Boston, Massachusetts, and clerked for the Massachusetts Supreme Judicial Court. Rebecca has helped clients with wage and hour disputes, including employee misclassification, late or unpaid wages or commissions, retaliation under the Wage Act, and advice to both employees and employers about wage and hour law compliance.
Jenna Ordway: Jenna is a 2013 graduate of Quinnipiac Law School, and also earned an LLM in Taxation from Boston University in 2015. She has been affiliated with slnlaw since 2011, first as a law clerk and then as an attorney. Jenna has been recognized since 2019 as a "Rising Star" by Massachusetts Superlawyers. Jenna has helped clients assess their rights under the wage and hour laws, including employee misclassification, untimely payment of final wages, late or unpaid commissions, retaliation, and advice to small business owners about wage and hour law compliance.
Elijah Bresley: Eli is a 2014 graduate of Seton Hall Law school, and has worked with slnlaw since 2020. He previously worked for a boutique employment law firm outside of Boston, and then for the Labor and Employment department of a large Boston firm. He also spent a year clerking for the judges of the Superior Court in Hartford, Connecticut. Eli has helped clients with wage and hour claims, including late or unpaid commissions, retaliation, employee misclassification, and overtime, and litigated these claims in state and federal courts. He also advises employers about employment policies and wage and hour compliance.
Sharleen Tinnin: Sharleen is a 2010 graduate of Northeastern University School of Law, and has been with slnlaw since 2023. Prior to joining slnlaw, she worked with King, Tilden, McEttrick & Brink, P.C. on complex civil litigation matters. She previously worked for the United States Department of Justice, and received an "Excellence in Justice" award in 2017. Sharleen has helped clients with multiple wage and hour issues, including retaliation, misclassification, and late or unpaid wages or commissions, and litigated these claims in state and federal courts.
How We Can Help
Our expert guidance clarifies the legal distinctions between commissions and bonuses, empowering both employees seeking entitlement clarity and employers structuring compensation plans. Navigate Massachusetts employment laws with confidence. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
|
|
|
|
|
