'Draw against Commission' vs 'Salary Advance'

Factual Questions
1

My sister is telling me this story that doesn’t make sense to me about her employer and her commission. I’m hoping to make sense of it by getting a few questions about selling at a retail store on commission.

She got a detailed statement from her employer (a furniture reatailer)about the status of what she calls her “draw” account. At first she said that she “owes” them about $1k, and later she said she didn’t. As close as I can tell, she was hired on 100% commission, with no base salary at all. However, she signed up for this account when she was hired that would maintain her pay check at minimum wage levels, even if she did not earn that much commission. The money would be paid back out of future commissions. Now her account is at about a thousand in the hole.

Then she said, “I never have to actually pay it back. Whatever commissions I earn will just be put against this balance, and I can continue to draw minimum wage”. During which, apparently, this balance will continue to grow because she isn’t earning enough to cover minimum wage now.

So I asked her. “If you quit today, do you have to pay this amount back?” “No”, she said, and a liitle back and forth told me she’s convinced this is not a debt and it won’t matter when she’s gone on to another job. Something akin to a note on her personnel file, not a debt they can take her to court over. She said it was common at stores like Penny’s and Eddie Bauer.

Can someone enlighten me on common practices in the industry. I don’t trust my sister’s judgement on this, as she managed to accept the job and show up for the first day of work not understanding there was no base salary.

2

This is an excerpt from a sample policy on draw against commission from SHRM, the Society for Human Resource Management. Their sample policies generally represent standard industry practice.

A draw is a loan from the company to the salesperson that is carried forward until the sales person earns sufficient commissions and/or incentives to repay it or until the employee is no longer employed with the company. The draw will be repaid as follows:

a. The outstanding draw will be withheld from earned commissions and/or incentives; however, the amount applied will not exceed 50 percent of the earned commission in any given period.

b. If a salesperson’s employment is terminated prior to full repayment of the draw, then the amount outstanding becomes due and payable in full at the time of termination. The company reserves the right to withhold the outstanding balance from any accrued vacation due at the time of termination as well as from any other form of compensation due to the salesperson to include salary, commissions, incentives, buy-back of stock differentials and reimbursable expenses.

Looking at this sample, it seems like your sister could indeed be required to repay the whole draw. An individual company might have a more generous policy, of course, and state law might require a more generous policy.

Your sister should look in her employee handbook (might be a website, or just a form she signed) to see the company’s actual policy.

This site (some info specific to the state of Oregon, though) explains that there is still an obligation to pay the minimum wage, so that may come into play in your sister’s case.

http://www.boli.state.or.us/technical/tacommis.html

To net out these 2 pieces of information, it looks like employers do have the right to collect draw overpayments, but also the obligation to pay minimum wage. Remember that in some cases the draw is intended to keep the salesperson’s income steady at a level well above minimum wage.

This part is IMHO, but if a salesperson is struggling to make minimum wage at a 100% commission job, it doesn’t sound like the arrangement is working for employer or employee.

3

Thanks. She is in Wisconsin, and I will look at what the state laws about minimum wages are.

The match may not be as bad as you think. From what I hear, this place is a shitty employer. From what I know of my sister’s history, she’s a shitty employee. She is also planning on quitting by simply not going back to work again and mailing them a resignation letter.