If you receive commissions, bonuses, or other variable pay, your employer may have referred you to your “compensation plan.” But what exactly is a compensation plan in California—and what happens if your employer doesn’t follow it?
This blog explains what a compensation plan is, what it must include under California law, and how it affects your right to be paid commissions and other forms of compensation.
What Is a Compensation Plan in California?
A compensation plan is a written document that outlines how an employee will be paid for their work, beyond base wages or salary. It often covers:
- Commission structures
- Bonus formulas
- Performance incentives
- Payment timing and conditions
- Policies on advanced commission chargebacks or clawbacks
In California, compensation plans are most commonly used for sales roles or positions where variable pay depends on meeting specific targets or metrics.
However, compensation plans are also common in professional and white-collar settings. For example:
- Physicians or other medical professionals who receive a share of a clinic’s or hospital group’s net revenue
- Attorneys whose income depends on the firm’s billable revenue or client collections
- Partners or shareholders in professional service firms whose pay is tied to profitability formulas
- Executives who receive performance-based bonuses, profit-sharing, or equity-based compensation
- Project managers or consultants whose pay is linked to project outcomes or client retention
In each of these examples, the compensation plan governs when and how the employee or professional becomes entitled to additional compensation—and whether that compensation can be withheld, reduced, or taken back under certain circumstances.
Are California Compensation Plans Required to Be in Writing?
Yes—if commissions are involved. Under California Labor Code § 2751, employers must provide a written commission agreement that:
- States how commissions are calculated and earned
- Explains when commissions will be paid
- Is signed by the employer and acknowledged by the employee
Even if a compensation plan includes other elements, like bonuses or quotas, the commission terms must be clearly laid out in writing.
Why Compensation Plans Matter Under California Law
The terms of your compensation plan determine when a commission or bonus becomes earned—and therefore legally protected as a wage under California law.
Once a commission is earned under the plan’s terms, your employer cannot withhold it, delay it, or change the plan retroactively to avoid paying you.
If the plan is vague, missing, or unfairly applied, you may have a legal claim for unpaid wages.
Common Problems with Compensation Plans
California employees frequently encounter issues such as:
- Missing or unsigned commission agreements
- Unclear language about when commissions are earned
- Retroactive changes to commission or bonus formulas
- Chargebacks or deductions not mentioned in the plan
- Delayed payments even after all conditions are satisfied
These issues can lead to underpayment, confusion, or even legal violations if the employer fails to follow the plan or comply with wage laws.
What You Can Do If You Have a Compensation Plan Dispute
If you believe your employer hasn’t followed the compensation plan, or hasn’t provided one, take the following steps:
- Request a copy of your plan
Ask for a written version of your compensation terms, especially if commissions are involved. - Review the terms carefully
Focus on when commissions are earned and whether clawbacks or deductions are permitted. - Document your performance
Keep records of sales, client activity, and any bonus or commission tracking reports. - Consult with an employment attorney
You may have a claim for unpaid earned wages if the employer failed to follow the plan.
Conclusion
A compensation plan defines how you get paid—and in California, it’s especially important when commissions are involved. Once you satisfy the conditions in your compensation plan, your earnings are protected as wages under state law.
If your employer isn’t honoring the terms of your plan, or hasn’t given you one in writing, you may have a claim for unpaid commissions or bonuses.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
Contact the Ruggles Law Firm at 916-758-8058 for a free, no obligation consultation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
