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 that gave rise to the right to the money, are performed (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 is 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 that resulted in the transaction was performed. If no work was performed, then the earnings are allocated to the week of the transaction (EIR 36(6.1)(a)).

When the total commission earnings arising from the transaction are equal to 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 the week in which the transaction occurred (EIR 36(6.1)(b)). However, if the claimant indicates that the work that gave rise to the commission earnings (resulting from the transaction) was performed in more than one week, then the earnings are allocated to the specific weeks where the work was performed, in a manner that is proportional to the amount of work performed during each of those weeks.

To determine how commissions will be allocated, it must be ascertained whether the right to the commission occurred due to services performed, or as a result of the completion of a transaction. A right to the commission occurs when claimants have a legal right to compel their employer to pay them; that is, when claimants have a legal actionable right to the moneys. Although in most situations of commission sales there are services performed, the right to the commission may arise from either those specific services, 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 not necessarily 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 once the service has been performed, the commission is owed (CUB 20034, CUB 25395). The date the service is performed is usually the same as the date of the sale and it is at that time that claimants have an actionable right to the commission. Examples include hairdressers who receive a commission on their services, employees who prepare income tax returns, repairpersons 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, or at the time the product is delivered, 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 commissions. Examples are cosmetic or furniture salespersons, home or door-to-door sales of various products, or life insurance salespersons. If the finalizing of the sale or the contract (which gives the right to the commission) occurs at a different time from the time services are performed, the allocation of the commission earnings cannot be completed until after the transaction takes place (CUB 77097; CUB 67376). Whether a claimant is working a full working week or not, their availability for work may need to be considered for any period they are performing services without any income.

Sometimes, it is a later event or some other action that gives claimants the actionable right to commissions. It is the later event and not the performance of services or the time of the claimant's sale or contract with the customer, that gives them the right to the commission. For example:

• 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 claimant has 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 future anniversary dates of the renewals provide the right to subsequent commissions

In these situations, the allocation of earnings arising from a transaction or event is determined by the total or aggregate amount of the commission arising from the transaction. If the earnings are equal to or less than the maximum yearly insurable earnings in effect at the time of the transaction, divided by 52, they are allocated to the week of the transaction. If the earnings are greater than the maximum, then the commission earnings are allocated proportionally to the weeks in which the work that gave rise to the transaction was performed. Commission earnings that 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)).

[April 2021]