Are employers exploiting commission only workers?

In common with many families this year, my youngest son left university and started looking for work. He was amazed to get an interview quite rapidly.  After a day’s assessment he was offered a job on a commission-only basis.

The job involved four hours a day ‘administration’, when no commission could be earned. There was no guaranteed minimum for pay, and most of the employees he spoke to worked 13 hour days six days a week. He turned the job down, but lots of people were working there.

Young workers who do not have employment law specialists as their parents don’t always know what their legal entitlements are. But when it comes to commission work, here is how it goes.

1) Whatever the rate of commission, pay must not fall below National Minimum wage for the hours worked (eg there is always a ‘floor’)

2) If you are over 21 the minimum hourly rate is £6.31. It will go up in October 2013. For other rates click here:

3) Wages are calculated within a reference period – normally the pay interval, which would usually be weekly or monthly.

4) All the hours you are at work (except when on breaks away from work and the workplace) are part of the calculation – if you are in a telephone bank and ‘on call’, it is not just the time you spend on the phone that counts, but all the time you are sitting there waiting to answer a phone.

5) If you work in an office to do your commission based work, you are on a ‘time base’ – click here  for how to calculate your hourly rates on line.

6) You take the number of hours worked (so it is important to keep a proper record) and the commission earned, and divide the hours into the commission to get the hourly rate. For example for a weekly paid worker:

Commission £80/Hours worked: 40 hours this week = Hourly rate £2 per hour

7) The fact you agreed to a lower rate, or signed a contract, or didn’t get one is not relevant to your entitlement to minimum wage – if you are an employee or a worker (eg not running your own business but working for them) then this entitlement exists.  If they tell you are self-employed this doesn’t change anything.

8) If you have been underpaid National Minimum Wage, you can get back pay for up to three years to bring you up to the right rate. You can get free help from the Workers Rights helpline 0800 917 2368, who specialise in this area.

9) You can make an anonymous complaint online to HMRC –your boss does not have to know it was you who complained click here for the form to start things off

So if you are offered a commission-only job ask your employer:

  1. What is the period of calculation for commissions (eg weekly, monthly, quarterly, annually)
  2. What is the pay period (weekly, monthly)
  3. What happens if for some reason my commission falls below minimum wage

You need to keep proper records from the start of:

  1. How many hours you worked
  2. How much you were paid
  3. Any advances against commission (they do not count towards minimum wage)
  4. Keep copies of the advertisement, job offer letter, contract – don’t lose them

And you need to check your payslip and commission statements to make sure your gross pay (before tax and national insurance) tallies with your records. We spend a lot of time getting commission for workers who have simply not been paid it.

While some employers do make mistakes, and there is the odd one who really doesn’t understand minimum wage, in the main employers who do not honour minimum wage or pay the proper amount of commission are not for the long term. You should be job hunting for something better.

More help?

If you are boss reading this, then you can find some proper Commission Only contracts that take account of minimum wage (and statutory holiday and more) click here.

We run regular free dial in sessions on Commission based workers/employees and their rights.  They are one hour by phone.  To find the next free event click here

STOP PRESS
Unions are waking up to this and are beginning to take test cases – the first ‘marketing’ companies are under the spotlight -….more

Annabel Kaye is Managing Director of Irenicon Ltd, a specialist employment law consultancy.
Tel: 08452 303050 Fax: 08452 303060 Website : www.irenicon.co.uk
You can follow Annabel on Twitter

17 Comments

Filed under employment law, pay, young workers

17 responses to “Are employers exploiting commission only workers?

  1. Really interesting post, thank you for going into such detail! Aside from anything else, sometimes commission based earning isn’t the best way to get your team ‘motivated’. We are an estate agency that doesn’t reward with commission – we survey all tenants and landlords and its their feedback that determines whether our consultants (on a high ‘basic’ for the industry) receive a monthly customer service related bonus.

    Happy, customer service orientated staff who work together to find people their home – exactly what we would like from an estate agency anyway!

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  3. A well written article, Annabel, carefully pitched to be clear to the target reader. Without such knowledge, I am sure that workers are being exploited by commission only pay schemes.

  4. Solomon

    Hi, I am being offered commission only work. I am having second thoughts about it and they have asked me to register my self as self-employed to get the job. Is it legal? Can someone give me advise?

  5. Dave Allen

    The issue is that people working with organisations like these are not legally employed by the organisation. They are self employed members of the organisation therefore are not subject, like the organisations themselves, to adhere to UK employment law. Haing been a member of an organisation like the one you describe above, i can confirm that you can earn a substantial ammount depending on product and sales figures, the unfortunate fact is that most people don’t. The fact that I happened to be relatively successful in the organisation did not stop me from seeking full time, salaried employment.

    • Thanks for your comments. I am sure you can earn a lot on some types of commission only work.

      Workers are covered by National Minimum Wage which means that the self employed can also be covered by this. If the worker is providing the service personally they will generally be covered abnd calling them self employed makes no difference.

      It is not what the relationship is called, but how it is operated that defines who is an employee and who is a worker. Workers have a range of rights under UK law – from discrimination and equality to National Minimum Wage and more. We run fairly regular free telesemnars on freelance workers and their rights if you want to know more http://www.koffeeklatch.co.uk/events

  6. Maggie

    My employment contract states that I am entitled to 40% commission of all invoices I have raised and the client has then paid. If the client does not pay, I do not get paid anything for the work I have completed in respect of that invoice. Thus, it is entirely possible that i could have worked a seventy hour week and then not be paid a penny. My boss does not and will not pay the national minimum wage either, so I really do not get paid anything. But I have an employment contract and I can only see clients and provide work through the firm. How can he be allowed to treat me and others like this?

    • If you follow the links in the article above you can report your employer anonymous to HMRC. They have the right to organise back pay for all the workers but it only goes back so far, so the sooner you start the less of the early period you will lose.

    • If you follow the links in the blog to the HMRC site you can report anonymously and HMRC can enforce minimum wage for you (and all your colleagues).

  7. Ronnie

    Hello, I just started a new job this monday that is commission only. I signed a contract agreeing that I am a (ISA) Independent Sales Agent. And It is basically just door to sales. But I have been just training all week and not actually made any sales as of yet. But I have been working 13 hour days and would just like to know whether I’m entitled to minimum wage?

    • If you are genuinely self employed you may not be – see https://www.gov.uk/your-right-to-minimum-wage/who-gets-the-minimum-wage. The link sets out who is, and is not entitled to minimum wage. Self employment is a bit more than if your boss tells you you are, if you are not sure, ask yourself do you set your own hours, use your own equipment, control your own working routine? This may give you clue.

      If you are on a government apprentce scheme you may also not be entitled to full minimum wage.

      If in doubt talk to HMRC (follow the links in the blog). I don’t know anything about your job, but there are a lot of scam jobs out there and you should be careful. HMRC can follow this up anonymously and you don’t need to let your employer know you are checking this out….

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  9. Free Butterfly

    Hello,
    Thank you for this post, you answered many questions. I have another question though. My spouse went to an interview for a commission-based job. He was invited to go to a day of training on door-to-door sales from 2 pm to 8 pm. He was asked to observe onlyso I assume that is shadowing and is not paid. He was offered the job yet my husband’s questions regarding a contract were not answered. They told him to go the next day and they would talk about it. What they did tell him is that the pay rate was £20 per account opened and the hours were 10 am to 7 pm (the job advertisement said 10 to 7 also). My question is if only 2 accounts are opened yet the working hours are 9, would that be illegal because he would only get paid £40?
    I told my spouse to email this people and reject the offer because I had a bad feeling. Any employer that does not answer basic questions such as maximum hours worked is a no no to me. I was left wondering about this.

    • There are two ways minimum wage works for commission only workers:

      – one is a straight hours worked to wages earned. If your husband’s wages fall below that, despite what the contract says he can contact HMRC(see the link in the article) anonymously and get the back pay for all the workers. It takes a while for HMRC to swing into action but it is well worthwhile as enforcement is free.
      - the second is if he is working on an output basis, there should be a ‘fair estimate’ of how many hours a skilled worker needs to work to make minimum wage or above. This should be given to him along with his contract. Unscruplulous employers do not bother with the fair estimate. If there is no fair esitmate then he is on the first option, whatever the contract says. So if a skilled worker opens 5 accounts a day (and there are records to show this and a proper fair estimate) then your husband will earn less than minimum wage until he gets up to speed.

      The training time is difficult to answer as I don’t have neough details, but again if it is wrongly classified as unpaid HMRC can enforce back back.

      Your husband can chose to accept this job (and claim back pay through HMRC anonymously) or find another one. Even if he does accept the job it may take a long time to get the back pay and unless he has a good track record in sales it islikely he will be earning every little in the immediate future. Whilst some people do thrive in a commission based environment it doesn’t sound as though he has a track record that demonstrates this.

      You should also be aware that there are some rogue traders out there and you should check the company/organisation name by googling them and checking trading standards since there are several companies who knowingly recruit individuals on commission only and no-one ever gets paid a proper wage.

      The

  10. Alexandra Macfarlane

    I was working in a commission only position for approximately a month. I left at the end of July and have yet to be paid for a placement I made even though I left a month ago. What am I entitled to?

    • Take the hours you worked (don’t include breaks) during the pay period (weekly or monthly). Multiply it by national minimum wage (see article for links). That will give you your basic entitlement. If you did get paid anything deduct that. If there is anything left over that is what you are due. If you are due then use the links in the article to discuss with with HMRC. Even if you were a worker and not an employee this applies UNLESS there is a measured work statement – which is highly unlikely.

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