Draws, Loans, Salaries in North Carolina Commission Based Employees

August 19, 2011

North Carolina employers often pay sales employees via commission only.  Alternatively, business owners may seek to advance funds to the employee until the employee starts accumulating commissions. Often, employers will refer to this as a draw or a loan.  Employees may think of this as their salary.  There are important legal issues stemming from that determination for Raleigh business owners.

North Carolina follows the majority rule which suggests that payments are treated as salary unless there is an express or implied contract that suggests otherwise.  Courts have noted the superior bargaining power of employers and impose a duty on the employer of making their rights explicit, especially where they demand the return of previously transferred funds.

The lesson for business owners: make your rights explicit.  If advances are a loan, have an attorney draw up a basic promissory note. Indicate in your policies and procedures that payments are in fact advances and will be recouped under certain circumstances (indicating what those circumstances are).

If business owners are not explicit, they face exposure by withholding funds after the fact including damages under the North Carolina Wage and Hour Act.  The Wage and Hour Act has stiff penalties for employers, including the potential for double damages and attorney fees on top of salaries due and owing.

If you are an employee who is having wages improperly withheld or an employer facing potential exposure for salary payments which you believe to be draws, contact a business law attorney at Maginnis Law, PLLC.  Maginnis Law, PLLC has  Raleigh attorneys who can assist with drafting promissory notes, adjusting policies and procedures in employee handbooks, and representing businesses and individuals in civil litigation wage and hour disputes.

Maginnis Law is a Raleigh civil litigation firm handling matters in Cary, Apex, Durham, Morrisville and the rest of the Triangle area. Contact a business litigation lawyer at 919.526.0450 or submit a new case inquiry at www.maginnislaw.com/contact.

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