Between a rock and a hard place: draws verses commissions

Commissioned sales people often receive a weekly pay cheque that is called a “draw against commission”. There is no base salary.  They are simply being advanced monies against commissions they are expected to earn.
This is generally a reasonable arrangement. The employee has some assurance that they will be able to pay their monthly bills and will not be subject to cash flow crunches as commissions go up and down.
Sometimes, however, what can look like an attractive and reasonable arrangement can turn into a nightmare. If you’ve been unemployed for six months and your employment insurance is soon to run out, any cash in hand can be attractive. It is not until a couple of years later that some commissioned sales people rue the day they ever signed on to such a deal.
The problem happens when the draw against commission consistently exceeds the commissions actually earned.  You get to the end of the first year and you’ve drawn $50,000.00, $4,000.00 more than you actually earned.
The boss doesn’t demand you write a cheque but that $4,000.00 deficit  is carried into your next year. By the end of that year, you are $9,000.00 in debt, including the $4,000.00 from the first year; and on it goes.
Unfortunately, quitting gets you nowhere. As long as there is a clear practice reconciling these amounts and the employer can establish that it was clearly an advance against commission, not a guaranteed payment, you are going to owe them money. If you quit, your employer can sue you the next day for that $9,000.00 and will win. You end up being like a rat on a treadmill. The more you work and the harder you try, the more debt you are in. If you quit, you have no more income and a lawsuit to deal with. If you stay on the treadmill, things are just getting worse and worse.
The smart thing to do would be to have your boss reduce the draw. It may not start to pay back your debt but at least your debt may stop increasing. Easier said than done. If you are barely making ends meet now, there may not be room for further cuts to your personal expenditures.
The next option is to put some real energy into finding new employment. If you quit to take the new job you will still have a debt but at least you will be off the treadmill with some hope of things eventually getting better. Most employers are prepared to negotiate a reasonable repayment plan rather than have to pay a lawyer.
If you could manage to get yourself terminated without doing anything that’s so bad there would be just cause and an excuse for your employer to not pay you a severance, you might have a decent result. Your lawyer could demand an offset, a deduction, from the debt for any monies owed to you as a result of the severance payments required. If you had been there long enough and if the debt is not too bad, you might even end up with a surplus.
But realistically, who would want to fire you? You’re running faster and faster on that treadmill to try to get ahead of the game. It’s perfect. People who make their sales away from the office, other than route sales people, are not entitled to minimum wage. All other sales people are entitled. If you are an inside sales representative who works from the office or mostly works from the office, you should keep track of the hours you work, even if your employer does not. If the deficit you are running ever results in you receiving less than minimum wage, the employer can’t recover the amount that would dip you below the minimum.
At the end of the day, the best advice is to take a hard look at where you are at after a year. If things look like they are headed in the wrong direction, put time and energy into finding new employment. It’s hard to do when you’re already scrambling but it’s a must. The short term pain is worth the long term gain.
As published in The Hamilton Spectator, November 28, 2011
Ed Canning
Ed Canning
P: 905.572.5809