What’s the difference between a “commission” and a “bonus”?

What’s the difference between a “commission” and a “bonus”? Does the difference make any difference? What is really important?

The name means nothing. At the end of the day, what you or your boss call the form of compensation really doesn’t matter all that much. If you remember your Shakespeare, there’s that line in Romeo & Juliet that says, “A rose by any other name would smell as sweet.” Sometimes a company will call a payment a “bonus” when technically it’s a “commission”; other times they’ll give you a “bonus” that’s more like a present. It doesn’t matter what they call it; what does matter is the reality of the situation.

Earned vs. Discretionary.  One of the first things to look for in the “reality” of the situation is whether the compensation is something you have earned – such as by hitting certain benchmarks or making a certain amount of sales – versus whether it’s basically at the complete whim of the company. Compensation that you have “earned” – whether by working a certain amount of hours, doing your job as a salaried employee, or hitting certain specified targets – is generally considered to be “wages.” That becomes an extremely important concept if you ever have to pursue those wages in a legal claim.

Why does the distinction matter? As a general proposition, if you have “earned” it, you are entitled to it. In legal claims the words typically used are “earned, vested, and determinable.” If you’ve earned it, it’s really due to you, and the amount is set, you’re generally entitled to it. If you are merely just hoping for it but didn’t do anything in particular to deserve it – such as a holiday bonus or because the company did particularly well that year – you are less likely to have entitlement to it.

What if it’s not black and white?  Of course, there are lots of situations that are not very clear. Language in an offer letter or employment contract can be critical, but if it’s ambiguous or unclear, disputes often arise. Very often these disputes can go in the employees’ favor. If in doubt, it’s often worth it to have a lawyer advise you on whether you could make a claim. You may find that is a better course of action for you, rather than just giving up because your boss says that the contract “really means” this rather than what she says it does … and possibly walk away from your earned commissions, bonuses, or whatever you have chosen to call them.

Written by Penn Dodson