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Q: We pay our sales staff on a commission basis. Often, after a sale has been made and the employee has been paid, the product is returned for a refund. We have always reduced the employee’s pay in the next period by the amount of commission he or she was paid on the returned item. Now one of our employees claims this is an illegal wage deduction. Is he right?
A: No. However, there are a few things you should do to stay out of trouble.
Oregon law says an employer may not deduct any amount from an employee’s pay unless it falls within five defined categories. Generally, these categories are taxes, health insurance benefits, amounts authorized by a collective bargaining agreement, garnishment fees, and other amounts if authorized by the employee in writing and the ultimate recipient of the money is not the employer. This is likely the rule to which your employee is referring. However, he is making a common mistake.
With commissioned salespeople, so long as they make minimum wage and overtime (unless they qualify for an exemption), you can set up their pay plans however you would like. Typically this will include a deduction from the overall calculation based upon returns. This constitutes part of the original wage calculation, not a deduction from wages, as argued by your employee.
Some employers get into trouble with this because they do not use the correct terminology. During a pay period in which a product you sell can be returned, a payment made to an employee should be labeled an “advance.” The payment is then treated as an advance until the return period expires. The returned commission amount should be clearly reflected in a written calculation of the amount being paid. In other words, show the employee that he was already paid for a commission he wasn’t entitled to and that this is being removed from the current pay.
The commission schedule can also cause problems. Many employers create elaborate schedules of changing commission rates based on performance but fail completely to address returns. Make sure your written pay plan provides expressly what will happen when a product for which the employee has been paid a commission is returned. If the pay plan is silent on this point, not only will you have more trouble convincing a judge or jury that it really wasn’t a deduction but you will, at a minimum, damage the morale of your sales staff, who will see hits to their commissions that they weren’t expecting.
Q: OK, so I can deduct the commission from returned items from later paychecks. But what if doing so would take the employee below minimum wage for that pay period?
A: This is a little bit tricky, but if you set it up correctly in the beginning you can still do it.
If you calculate the employee’s wages for the period in which the advance was given combined with the period in which the advance was recouped, did the employee make at least minimum wage plus any applicable overtime for all of the hours worked during that period? If so, then you do not have a minimum wage or overtime problem.
The following example is a simple way to consider it: If I ask my employer to advance my next week’s salary this week, and it does, I can’t sue my employer next week for not paying me at least minimum wage. The fact that it was paid ahead of time does not make the later week in which no money was paid a violation.

Mitch Baker is of counsel at the Portland office of Fisher & Phillips, one of the United States’ largest law firms that represent employers in labor and employment matters. Baker specializes in labor and employment law and employment discrimination. He can be reached at 503-242-4262 or [email protected]. Fisher & Phillips’ Web site is at www.laborlawyers.com.