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The term “Gross Profit” in commission agreements allows the employer to manipulate the numbers and screw you.
Try to get a commission deal where you get to take a cut off the sales price — Which is a number that the employer cannot easily manipulate.
Employers use the “Gross Profit” term because they wish to be able to manipulate the numbers
Too many commission plans are based on you getting a percentage of “Gross Profit”, and that term is either undefined or is easily manipulated by the employer to reduce your commissions.
“Gross profit” has NO exact meaning in law — Each industry may have their own rough meaning — Each company may have its own meandering, changing meaning — And the employer can cook the books and twist the calculus to screw you — Believe me that it happens all the time, and it is hard and expensive to fix.
I have been watching employers screw employees using the “Gross Profit” basis for commission calculation since 1997. — It is time for me to say something about it here.
Try to get a commission deal based on taking a percentage of raw sales dollars, right off the top. The employer cannot deny what the sales price was, so you can more easily determine the commission due. For one example, “I get 10% of sales when they pay their bill” — That is straightforward and easy to figure out.
Compare my above example to real-life cases using “Gross Profit”. Example: “You get 20% of Gross Profit”, where the Company decides what the margin was (using a secret formula), what the overhead was (which you can’t verify), and then may arbitrarily extract some extra for the executives (by padding the preceding numbers a little bit), and then the Company tells you what it feels the “Gross Profit” was on the account — In such cases you are at their mercy and nearly powerless to confirm that your commissions were paid properly.
You have the right to sue for “An Accounting” if you suspect you are being cheated, and there are some helpful laws that kick in if you have good evidence of cheating on commissions. But you usually can’t afford to sue them. And you are probably held prisoner by a Non-Compete agreement (which BTW may not be fully enforceable due to the cheating, if you have good evidence), which all makes things very complex — Get the right kind of commission agreement from the start and avoid all this mess.
Missouri has no specific law dictating how commissions are calculated. And the Missouri Dept of Labor will not help you. — You have to see a lawyer to get any help.
If you have enough bargaining power, maybe I can negotiate the right kind of commission deal.
Article written by | Tim Willoughby
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Timslaw.com Missouri Employment Law
Maintained by Attorney Phil Willoughby
Phil is a Missouri employment lawyer who is licensed to practice in Kansas and Missouri, and primarily takes cases in Saint Louis and Kansas City. He is a member of the Missouri Bar Association and Kansas Bar Association. Additionally, he has practiced in the United States Federal Courts of Missouri in St. Louis and Kansas City. He has also practiced in the Kansas Federal District Court in Kansas City, Kansas.
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