Payment of commission and the national minimum wage: weekly dilemma

Q I run a small estate agency business. Most of my sales staff have high fixed salaries and are entitled to commission, which in good times added 10-20% to their salaries. Given the present economic climate I want to move them on to commission only arrangements as I cannot afford to carry on paying them. It’s either that or redundancy. Can I force them take commission only arrangements? I have also just lost a member of staff and although I have no plans to replace them at present, for any future recruitment can I put them on to commission-only arrangements?

A For existing staff you cannot switch to commission-only arrangements unless there is an express provision in your contract which allows you to do this or your staff agree to the change. For new staff you can offer them commission-only arrangements provided they receive at least the national minimum wage (NMW).

Assuming there is nothing in your employees’ contracts which allows this change, you will need to persuade them to agree a change. Any attempt unilaterally to impose changes resulting in their remuneration being decreased would be in breach of contract. If you attempt to impose a change, employees will have a choice of how to respond. They could stay and bring a claim against you for breach of contract and wrongful deduction from wages in failing to pay them an amount they are contractually entitled to. Alternatively, they could resign and claim constructive unfair dismissal.

If employees won’t agree to the changed arrangements you need to consult them about the effect of the refusal and the possible steps you might need to take. For example, you might need to make staff redundant if insufficient sales are achieved or you may need to give notice terminating their contracts on their existing terms and offer them new contracts on the commission only arrangements. If you take this latter course it is essential that you consult staff and follow the statutory dismissal procedure.

Given that you intend to pay monthly in arrears, you will need to determine at the end of each month whether sufficient commission was earned by your employee(s) during the preceding month to meet the applicable NMW level.

To ensure there is no breach of the NMW regulations, it may be preferable to offer a base salary equal to the applicable NMW level and structure your commission scheme to be payable only on earnings in excess of that amount.

Jane Moorman, partner and Melanie Smith, solicitor Howard Kennedy

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