Commission-based salaries: know the legal requirements

by Chloe Taylor05 Feb 2015
An Adelaide-based residential property company has been fined $29,790 in the Federal Circuit Court after hiring people using misleading job advertisements.

One man took a sales position with Longridge Group after being led to believe that he could earn $120,000 or more annually, while another took a role under the impression that he could earn $70,000 a year.

The first worker resigned after ten months, during which time he had earned less than $7000. The second man quit six months after being employed, having been paid nothing at all.

Following legal action being taken by the Fair Work Ombudsman (FWO), the company admitted it had inadvertently breached workplace laws by paying the two employees on a commission-only basis in 2011-12.

Under the 2010 Miscellaneous Award, the pair were legally underpaid a total of $24,956 in minimum wages and entitlements.

The first employee, who had an MBA in sales and marketing as well as 22 years’ experience in similar roles secured the position after responding to a newspaper advertisement that promised “an earning structure that doesn’t limit earnings – 120K++”.

During his ten month employment, he managed to sign up only four customers to building contracts, earning him only $6704 in commission when legislation required he be paid a minimum $20,013.

The second salesman gave evidence to the court that he understood he would be able to earn between $70,000 and $80,000 per year with Longridge. However, he was paid nothing, when he should have been paid $11,647.

Lucienne Gleeson, associate at PCC Lawyers, told HC that employees cannot be hired on a commission-only basis.

“Commission is generally paid on the basis of an employee’s performance,” she said. “Employers are not allowed to base an employee’s wage solely on commission. They must, at a minimum, pay a base rate of pay, which meets the minimum wage set under the relevant modern award. Employers often pay commission on top of base rates – particularly in a sales focused environment – as an incentive.”

Gleeson also outlined the reason behind Longridge’s heavy fine.

“If an employee is not paid at least the minimum wage, the employer will be breaching a modern award for which they can be fined under the Fair Work Act,” she explained. “The fine can be up to $10,200 for individuals and $51,000 for corporations, as well as being ordered to pay back pay. It is crucial that employers are aware of what awards apply to their workforce so that they have the ability to ensure that each employee is paid on or above the minimum wage – this avoids being at risk of having breached an award.”

The FWO began their investigation after receiving complaints from the workers, and took legal action when the company refused to back-pay its former employees.
Following the company’s in-court admission to its failure to meet its obligations, the workers were back-paid in full.

“If it is represented to an employee in an advertisement that they will be able to receive commission and this never occurs they may have a claim under the Australian Consumer Law for being misled about their terms and conditions of employment,” Gleeson told HC. “Alternatively, depending on the details of their employment contract they could also have a breach of contract claim.”

Judge Stewart Brown found that the underpayments significantly affected each of the employees, forcing to depend financially on their respective wives.

He added that the employees provided valuable services for Longridge for which they were not remunerated.

“They manned [Longridge’s] display villages, they fielded inquiries from the general public, they acted as the public face of Longridge,” he said. “The gentlemen in question worked for periods of months, rather than weeks or days, before they each threw in the towel and sought alternative employment.”

Brown found that the company was unaware that the Miscellaneous Award was applicable to their employees, but that the company must have been aware that “each was falling far short of the average level of wages enjoyed by other sales consultants”.

“The objective of the modern award system is that all employees should have available to them an appropriate safety net of minimum employment standards,” Brown said. “The penalty must be sufficient to convey the message to other employers of the importance of adherence to applicable modern awards in their payment of employees.”

He also ruled that the company’s failure to keep proper employment records was a serious breach of legislations, noting that Longridge accepted that there was no reasonable excuse for it.

“The keeping of proper and accurate employment records enables regulators, such as the Fair Work Ombudsman, to carry out their statutory obligations effectively,” he said in his decision.

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