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How to Write a Demand Letter for Unpaid Commissions

Quick Answer: A demand letter for unpaid commissions demands payment of earned sales commissions that your employer or client has failed to pay. Reference your commission agreement, identify each transaction that generated a commission, calculate the exact amount owed based on your agreed rate, and set a payment deadline of 10 to 15 days. Many states treat commissions as earned wages with the same legal protections and penalties.

What Is a Commission Owed Demand Letter?

A commission owed demand letter is a formal written demand for sales commissions that have been earned but not paid. Commission disputes are one of the most common employment compensation issues, arising when employers change commission structures retroactively, refuse to pay on closed deals, reduce commission rates without notice, or withhold commissions after an employee's departure.

Commission disputes often involve significant amounts of money, as a single deal can generate thousands or tens of thousands of dollars in commission.

Legal Context and Your Rights

Commission Agreements

Your rights depend heavily on the terms of your commission agreement:

  • Written commission plans: If you have a written commission agreement, its terms generally govern when commissions are earned and when they must be paid. Courts interpret ambiguities in favor of the salesperson.
  • Oral agreements: Verbal commission agreements are enforceable but harder to prove. Gather evidence such as emails discussing commission rates, prior commission statements, and testimony from colleagues.
  • When commissions are "earned": The critical question is when a commission becomes earned. Most agreements tie this to a triggering event: signing the contract, delivery of goods, receipt of payment by the company, or completion of a service period.

State Commission Laws

Many states have specific laws governing sales commissions:

  • Commissions as wages: States like California, Massachusetts, New York, and Illinois classify earned commissions as wages, which means all wage payment laws apply, including penalties for late payment and the prohibition on unauthorized deductions.
  • Post-termination commissions: Several states require employers to pay commissions on deals that were substantially completed before the salesperson left, even if the final payment is received after departure. California Labor Code Section 204.1 requires payment of commissions within a reasonable time after they are earned.
  • Commission chargebacks: Some states restrict an employer's ability to charge back commissions on canceled deals. If the cancellation was not the salesperson's fault, the chargeback may be unlawful.

What to Include in Your Demand Letter

Your Commission Agreement

  • The date you entered into the commission arrangement
  • The commission rate or structure (percentage, tiered, flat fee)
  • The triggering event for when commissions are earned
  • Any relevant provisions about timing of payment
  • A copy of the written agreement if one exists

The Unpaid Commissions

  • A detailed list of each transaction that generated a commission
  • The date each transaction occurred or was completed
  • The revenue or value of each transaction
  • The commission rate applied to each transaction
  • The commission amount earned on each transaction
  • The total unpaid commissions

The Demand

  • The total amount of unpaid commissions
  • Reference to your commission agreement and the specific provisions that entitle you to payment
  • Reference to applicable state laws treating commissions as wages
  • A deadline of 10 to 15 days for payment
  • A statement that you will file a wage claim and pursue legal action if not paid

Key Elements Specific to Commissions

  • Create a deal-by-deal accounting: List every transaction individually with dates, client names, revenue amounts, and your calculated commission. This level of detail makes it difficult for the employer to dispute the amount.
  • Address the "earned vs. paid" distinction: If your employer argues the commission is not yet payable, explain why the commission was earned based on the triggering event in your agreement. If you closed the deal and the client signed, the commission was earned even if the company has not yet collected payment.
  • Challenge retroactive plan changes: Employers sometimes attempt to change commission plans retroactively to reduce payouts. In most states, commission plan changes can only apply prospectively. Commissions earned under the prior plan must be paid under those terms.
  • Document your contribution: If the employer argues you did not close the deal or that another salesperson deserves the credit, gather emails, CRM records, meeting notes, and client communications showing your role in the transaction.
  • Include post-termination commissions: If you left the company but had deals in the pipeline that subsequently closed, you may be entitled to commissions on those deals. Many states recognize the procuring cause doctrine, which holds that the salesperson who was the primary cause of the sale is entitled to the commission.

Timeline Expectations

  • Day 1: Send the demand letter via certified mail to the employer's legal or HR department
  • Days 7-10: The employer reviews the demand and your commission accounting
  • Days 10-15: Most responses arrive in this window, often disputing specific line items rather than the entire claim
  • Day 15: If unpaid or unresolved, file a wage claim with your state labor department
  • Days 15-90: State labor department investigation. For larger amounts, consult with an employment attorney.

When to Escalate

Pursue legal action if:

  • The employer ignores your demand
  • The employer disputes your commission calculation without providing their own accounting
  • The employer claims a retroactive change to your commission plan
  • Multiple commissions are involved and the total is substantial

Employment attorneys frequently take commission cases on contingency because state wage laws often provide for double or triple damages plus attorney's fees. For smaller amounts, filing a wage claim with your state labor agency is free and can be very effective.

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Frequently Asked Questions

Are commissions considered wages under the law?

In many states, including California, New York, Massachusetts, and Illinois, earned commissions are classified as wages. This means employers must pay them within the same timeframes required for other wages, and the same penalties apply for late or nonpayment. This classification significantly strengthens your legal position because wage and hour laws typically provide for double or triple damages and attorney's fees.

Can my employer change my commission rate without my consent?

An employer can generally change commission rates going forward with reasonable notice, but cannot retroactively reduce commissions already earned. If you earned a commission at 10% and the employer later reduces the rate to 7%, the deals you closed at 10% must be paid at that rate. Going-forward changes typically require written notice and may require your agreement depending on your employment contract.

Am I entitled to commissions on deals that close after I leave the company?

In many states, yes, if you were the procuring cause of the sale. The procuring cause doctrine holds that the salesperson whose efforts primarily resulted in the sale is entitled to the commission, even if the final paperwork was completed after their departure. Review your commission agreement for any provisions addressing post-termination commissions, as some agreements attempt to eliminate this right.