Key Takeaways

• In New Jersey, commissions are now considered legally protected wages under the NJWPL

• Labeling commissions as ‘Supplementary Incentives’ or ‘Bonuses’ does not avoid liability

• A New Jersey employer’s failure to pay earned commissions can lead to significant liability

In Musker v. Suuchi, Inc., the New Jersey Supreme Court addressed whether commissions are considered “wages” under New Jersey’s Wage Payment Law (NJWPL) after a salaried employee sued her employer for allegedly withholding earned commissions in violation of the NJWPL.

The employer argued the commissions in question were merely “supplementary incentives,” not wages, and therefore not subject to the protections of the NJWPL. The court engaged in a close statutory interpretation of the NJWPL and ultimately rejected the employer’s position. In the written decision, Judge Fasciale reasoned that earned commissions based on labor or services performed do fall within the statutory definition of “wages” under the NJWPL. The court made clear that employers cannot avoid their wage obligations by reclassifying earned commissions as “supplementary incentives,” regardless of whether an employee is paid a salary. Accordingly, the court held that the employee’s commissions constituted wages and were protected under the NJWPL.

Further, employers cannot avoid wage obligations by calling commissions “bonuses” or “supplementary incentives.” If the payments are based on an employee’s labor or services, and are earned, then they are wages — regardless of what the employer calls them.

This ruling means employers must treat commissions with the same care and compliance as salaries or hourly pay, including taking steps to ensure proper calculation, complying with required payment schedules, and providing and maintaining appropriate documentation.  Nonpayment or late payment of earned commissions exposes employers to potential wage claims or even class or collective-action lawsuits where employees may be able to recover lost wages, statutory penalties, and attorneys’ fees. This ruling increases litigation risk for employers with poorly defined or inconsistently applied commission policies, even when there is no ill intent.

This ruling aligns New Jersey more closely with Pennsylvania, which has long treated commissions as wages under its Wage Payment and Collection Law (WPCL). Pennsylvania courts have consistently held that earned commissions fall within the definition of “wages” and are subject to certain protections, such as timely payment, and employers can be subject to penalties for withholding earned commissions.

New York similarly treats commissions as “wages” under the New York Labor Law (NYLL), and also requires employers to enter into written compensation agreements with their commissioned employees to ensure clarity of all requisite terms. NYLL provides additional requirements for these commission agreements and offers protections around the accurate and timely payment of earned commissions accordingly.

Recommendations for New Jersey Employers

• Review and Revise Any Commission Agreements: For best practices, ensure that any commission structures are clearly defined in writing, including how and when commissions are earned and paid.
• Update Payroll Practices: Treat commissions as wages for the purposes of payment timing, recordkeeping, and pay obligations upon termination.

• Educate Human Resources Staff: Train and instruct HR personnel to treat commissions as wages to prevent any payment delays.
• Conduct an Audit: Review current practices to identify any unpaid or underpaid commissions and address any issues promptly and proactively.

If you have any questions about these changes or how they impact your business, please contact:

• Charles A. Lazo
• Cali L. Chandiramani
• Caroline J. Berdzik
• Scott R. Green
• Or another member of our Employment and Labor group