When we think about the treatment of commission payments during maternity leave or other short-term leave, we think about what is fair based on the details of the incentive plan in question. Specifically, we think about what the sales person is actually being paid for in a given performance period. Are payments due during short-term leave related to work performed prior to the start of the leave? If so, the incentive should probably be paid. If payments due during short-term leave relate to work that would have been performed had the sales representative been an active employee during the leave period, the incentive payout should probably be prorated accordingly. It might be easier to think about this in terms of a couple of examples:
- The incentive plan pays “now” for work completed “before” – A sales representative works for months to craft a deal. The deal closes a week after the sales representative begins maternity leave. The sales representative completed most if not all of the work to close the deal prior to the start of the leave. We would expect the sales representative to be paid incentive for this deal. Whether the incentive paid is 100% of the calculated incentive or a prorated amount, would most likely depend on who else was involved in closing the deal and what role they played. Bottom line, the sales results may have come to fruition during the sales representative’s leave of absence, but they were driven by significant work completed before the leave began.
- The incentive plan pays “now” for work completed “now” – A sales representative has ongoing responsibility for a group of accounts within a geographic territory. The sales representative calls on accounts regularly and maintains ongoing relationships that drive a flow of business. For every performance period, the sales representative is paid an incentive based on the aggregate performance of the accounts in their territory relative to an assigned goal (perhaps a revenue goal). If the sales representative begins maternity leave in the middle of a performance period, we would expect the sales representative to be paid a prorated incentive based on the number of days of active work during the performance period. Most likely a manager or peer is covering the territory while the sales representative is on leave. The “covering rep” may or may not be receiving additional compensation for their effort.
Of course, the above are only general guidelines and not legal advice. Talk to your legal advisor to evaluate any proposed approach in light of applicable state laws. Some countries outside the US, as well as some states in the US (the state of California in particular), have very specific guidelines about what constitutes a commission and how commissions should be paid.
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.