Sometimes customers return products, or they just don’t pay. As a result, some companies do a charge back on commissions paid to the sales person on the sale. The legality of this practice can vary from state to state. However, it is common practice to recover commissions paid in cases in which the company is not paid.
To be sure you’re covered legally, and that everyone knows what to expect, you would do well to document your intention to charge back commissions in case of returns or non-payment in your compensation plan document. Your plan document should also cover how you intend to handle leaves of absence, terminations, and claim the right for management to change the compensation plan at their sole discretion. Once you have that document in place, have a local lawyer review it, and you’ll be all set.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.