WANT TO PAY YOUR REGISTERED REPS 4 TIMES THEIR COMMISSIONS?
No one wants to overpay their registered representatives. But recent cases and the existence of a class of lawyers that sue firms for delays, failure to pay or underpayment of registered representatives require broker-dealers to review their payment practices.
According to Joe Sipkin, of Lerner & Sipkin CPA LLP, brokerage firms have many commission payment arrangements. Some firms pay weekly, others pay every other week, and some pay in the next month. All of these comply with New York’s Labor Law. If the rep brings in an investment banking deal, they agree to pay if and when the deal closes. If this agreement is written as described below, this also would be legally permitted.
Some brokerage firms pay their registered representatives a fixed draw and a percentage of commissions, fees and mark-ups/down charged their customers that exceed the draw. These commissions and fees in excess of the draw are usually paid in arrears. But if the registered representative is not employed at the time the payment would otherwise be made, many brokerage firms don’t pay it. This could lead to a suit or arbitration to recover double these amounts and legal fees.
Under New York’s Labor Laws a brokerage firm that fails timely to pay their registered representatives are liable for two (2) times the commissions not paid plus the legal fees of these brokers. These legal fees can easily exceed two times or more the disputed commissions. And, there is a group of lawyers looking for these suits.
How to Avoid This?
New York’s Labor Law allows the parties to a commission arrangement that would involve “substantial” sums to agree to a payment plan or agreement to defer payment beyond the law’s required payment date of the end of the next month. Such agreement or plan must be in writing, and must set forth:
- The terms of employment;
- A description of how commissions and draws are accrued and when they are payable; and
- When monies accrued are earned, whether they are payable in case of termination by either party.
To avoid this litigation threat provide in the written plan or agreement what is the draw, how commissions are computed, that commissions in excess of draw are payable at the agreed rate or at a lesser rate, at the discretion of the employer, e.g. the employee has violated the firm’s rules or policies, or unanticipated charges arise for the salesman’s trades, and that these excess commissions are not “earned” if the registered representative is not employed by the firm on the stated date for payment.
Questions Comments
Please feel free to call (212 455 0476) or email me (msimkin@securitiesregslawyer.com) with your questions or comments.
November 2018
Morris Simkin