California requires that all earned compensation must be paid at least semi-monthly (twice per month) on a regular payday. The regular payday may be no later than the 26th of the month for the first half of the month (1st through 15th) and no later than the 10th of the following month for the second half of the month (16th through the last day of the month). Pay periods may be shorter than semimonthly, i.e., weekly or bi-weekly, in which case, there must be a regular payday occurring no later than seven calendar days following the close of the payroll period.

There are no exceptions for commission, incentive or bonus methods of compensation.

Exempt executive, administrative and professional employees may be paid once per month, no later than the 26th of the month, but this exception is not available to other personnel, not even to other exempt personnel such as outside salespersons or commission-compensated personnel.

Overtime may be delayed one payroll period.

The question of when compensation is “earned” is the major and difficult question. It is partially subject to practicalities of the business and partially subject to judicial interpretation. It may require minute analysis of the compensation plan. In the event of legal challenges, arbitrary, artificial or unreasonable delays in recognizing “earned” compensation are likely to be rejected by the courts.

For example, a plan that does not recognize compensation as “earned” until payment has been received from the customer is likely to be upheld, if challenged in court, but a plan that does not recognize compensation as “earned” until the close of a quarter is more likely to be held unlawful.

In the case of plans that calculate compensation based on performance over an extended period, e.g., monthly, quarterly or annually, arguably compensation is not “earned” until the period ends and the required data is collected, but, again, arbitrary or merely convenient delays in data collection, calculation and payment are likely to be rejected by the courts.

Once a commission, incentive payment or bonus is properly deemed “earned,” it should be paid on the regular payday for the payroll period in which it was finally earned.

For example, if compensation is paid semi-monthly on the 10th and 26th, then commissions, incentive payments and bonuses determined to have been finally “earned” within the first 15 days of the month should be paid on the 26th, and commissions, incentive payments and bonuses determined to have been finally earned within the period from the 16th through the final day of the month should be paid on the 10th of the following month.
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AuthorLaw Offices of Hasti Daneshvar