Million-Dollar Question: Are Sales Commissions ‘Wages’ Under the Law?

New Jersey’s highest court has ruled that commissions are always wages under the state’s Wage Payment Law, reviving a sales employee’s chance for a potentially huge payout.

The ruling cautions employers to carefully articulate for employees how non-salary compensation will be earned and distributed.

New Job, Quick Transition

When Rosalyn Musker began working for Suuchi Inc. in January 2020, the company sold software subscription packages to apparel manufacturers. She was initially hired to perform administrative work, but after just a month, she transitioned to a sales position. In that role, she was eligible to earn commissions in addition to her base salary.

Pandemic Leads to Pivot – and Big Sales

When the global pandemic hit with full force a short time later, Suuchi began selling personal protective equipment (PPE). It told its sales employees, including Musker, that they would be paid on a commission basis for PPE sales.

Musker did quite well in this new area: In fact, she landed PPE deals that generated nearly $34.5 million in gross revenue. She said that under the company’s sales commission plan, as supplemented by an email from the CFO that specifically talked about the newly added PPE sales offerings, she was entitled to 4% of that money – which amounted to about $1.38 million.

Suuchi agreed that Musker should be paid a commission on the PPE sales, but it said the 4% should be calculated on net revenue, not gross revenue. If that was the case, her commission would be about $476,000. The court’s ruling says Suuchi offered to bump that number up to $525,000.

The company also asserted that Musker’s PPE commissions were “supplementary incentives” rather than “wages” under New Jersey’s Wage Payment Law.

What’s on the Line? 200% Penalty for Violations

The distinction is important: If a particular form of compensation is a supplementary incentive rather than wages, then it is not subject to the Wage Payment Law’s protections. Those protections include the potential to recover the payment due plus a penalty of 200% of those wages – in addition to costs and attorneys’ fees – from employers that violate the law.

So for Musker, convincing the court that her PPE commissions were wages rather than supplementary incentives was a high-stakes task.

Musker filed a complaint that accused the employer of violating the state law by withholding her wages.

A trial court ruled against her, finding that the PPE commissions were supplementary incentives rather than wages. After a state intermediate appeals court agreed, the case reached New Jersey’s highest court for further review.

State’s High Court Looks at Definition of ‘Wages’

The state’s highest court reversed the appellate court’s decision.

To determine whether Musker’s PPE commissions were “wages” under the law, the state’s high court looked at the statute’s definition of the word.

It pointed out that the law defines wages as “direct monetary compensation for labor or services rendered,” and that it specifically includes amounts earned on a commission basis.

While the statute excludes supplementary incentives from the definition of wages, it does not define either “supplementary” or “incentives,” the court noted.

The court said that compensation is a supplementary incentive under the law if it “incentivizes employees to do something beyond their ‘labor or services.’”

It added that payment for supplementary incentives includes payment for things like:

• Sharing office space.
• Achieving perfect attendance.
• Referring a friend to apply for a job opening.

The common thread: These are all things that are not directly related to an employee’s ongoing and typical job duties.

Given the applicable statutory language, the court had little trouble concluding that Musker’s commissions for selling PPE were wages under the law.

Selling PPE required Musker to provide “labor or services” as an employee, the court said.

The court ruled that “compensating an employee by paying a ‘commission’ for ‘labor or services’ always constitutes a wage under the [state law].”

In so doing, it squelched the suggestion that the PPE commissions were supplementary incentives because PPE was a new product that was not Suuchi’s primary business. Nor does the receipt of a base salary somehow turn commissions into supplementary incentives, the court added.

The ruling for the employer was reversed, and the case was remanded for further proceedings.

Paying Employees Properly: Key Takeaways

Here are a few important takeaways from this decision to help minimize the company’s risks:

• Gain a clear understanding of how your state defines “wages.”
• If you provide non-salary compensation, draft and distribute a written document that defines in clear and precise terms what those alternative forms are and how they will be paid.
• Be aware that the potential penalties for violating wage law provisions can be steep, as this case aptly demonstrates.

Musker v. Suuchi, Inc., No. 089665, 2025 N.J. LEXIS 213 (N.J. 3/17/25).