Digest of Benefit Entitlement Principles Chapter 5 - Section 8

5.8.0 Commissions

Commissions are a percentage or a flat rate paid based on sales made or services performed by the employee. Commissions arise out of employment under a contract of service and are earnings (EIR 35(2)).

Commissions are allocated to the period in which the services are performed, that gave rise to the right to the money (EIR 36(6)).

Commissions may also arise from a transaction (Digest 5.16.9.1). It is the total or aggregate amount of commission earnings arising from the transaction that determines how the payment will be allocated. When the total commission earnings arising from the transaction is greater than the maximum yearly insurable earnings, in effect at the time of the transaction, divided by 52, then the earnings are allocated proportionally to the specific weeks where the work was performed which resulted in the transaction. If no work was performed, then the earnings are allocated to the week of the transaction (EI R 36(6.1)(a)).

When the total commission earnings arising from the transaction are equal or less than the maximum yearly insurable earnings, in effect at the time of the transaction divided by 52, then the earnings are allocated to week in which the transaction occurred (EI R 36(6.1)(b)). If the claimant indicates, however, that the work which gave rise to the commission earnings (resulting from the transaction) was performed in more than 1 week, then those earnings are allocated to the specific weeks where the work was performed in a manner that is proportional to the amount of work that was performed during each of those weeks.

To allocate commissions, it must be ascertained whether the right to the commission occurred due to services performed or whether it is as a result of the completion of a transaction. A right to the commission occurs when claimants have the right to sue their employer for the owed commission in a court of law, that is, when claimants have an actionable right to the moneys. Although in most situations of commission sales, there may be some services performed, the right to the commission arises either from the specific services that were performed or from a specific transaction.

Claimants may have an actionable right to the commission at the time of and because of the services performed. When the actionable right is because of the services performed, there is usually not a sale of a product, although there could be. There is an offer of services (a contract is set up between the customer and the person supplying the service), someone accepts the offer, and the commission is owed (CUB 20034, CUB 25395). The date the service is performed is usually simultaneous with the date of the sale and, it is at that time, claimants have an actionable right to the commission. Examples include hair dressers who receive a commission on their services, employees who prepare income tax returns, repair persons who repair appliances, or piece workers. In these situations, the commissions should be allocated to the week(s) in which the services that gave rise to the commissions were performed.

Claimants may have an actionable right to the commission only when the sale or contract is finalized. This right may occur at the time of the sale or later, at the time of product delivery, and is determined by the terms of the contract with the customer or employer. In these situations, claimants often spend a lot of time performing services without gaining any right to any commission. Examples are cosmetic or furniture salespersons, home or door to door sales of cosmetics, jewelry, or catalogue products, and life insurance salespersons. If the finalizing of the sale or the contract (the right to the commission) occurs at a different time from the performance of services, the allocation of the commission earnings cannot be completed until after the transaction takes place. Working a full working week and availability may be issues to consider for the period claimants are performing services without any income.

Sometimes, it is a later event or some other action that gives claimants the actionable right to the commission. It is the later event and not the performance of services or the time of the claimant's sale to or contract with the customer that gives them the right to the commission. Examples are: real estate sales where the right to commissions is not reached until the sale closes and the property changes hands; car sales where the right to commissions is not reached until the transfer of ownership has been completed; payments made based on the sales of people the claimants have recruited for the company; royalties, which are calculated as a percentage (for example, per play of a commercial) or are calculated periodically (for example, replays of a commercial) that provide for further rights to commissions; renewal of life insurance policies, where later anniversary dates of the renewals provide the right to subsequent commissions. In these situations, the allocation of the earnings arising from the transaction or the event will be determined by the total or aggregate amount of the commission arising from the transaction. Earnings equal to or less than the maximum yearly insurable earnings in effect at the time of the transaction, divided by 52, are allocated to the week of the transaction. If the amount of commission earnings is greater than this, then the commission earnings are allocated proportionally to the weeks in which the work that gave rise to the transaction was performed. Commission earnings which cannot be attributed to either the performance of a service or a transaction are allocated equally to each week where the money was earned (EIR 36(6.2)).
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