Gift cards as form of payment

[Jennkelly]

I am in sales and work in a store that offers 5% commission. However, at the end of the pay period we are given the commission in the form of gift cards to the store. So essentially they are paying us in store credit to only be used at the store I work at. It carries high end items that I don’t need and typically don’t want. Is this a legal way to compensate employees for the commission portion of their income?

 

[Just Blue]

I am in sales and work in a store that offers 5% commission. However, at the end of the pay period we are given the commission in the form of gift cards to the store. So essentially they are paying us in store credit to only be used at the store I work at. It carries high end items that I don’t need and typically don’t want. Is this a legal way to compensate employees for the commission portion of their income?

What state?

 

[Jennkelly]

What state?

California

 

[LdiJ]

I am in sales and work in a store that offers 5% commission. However, at the end of the pay period we are given the commission in the form of gift cards to the store. So essentially they are paying us in store credit to only be used at the store I work at. It carries high end items that I don’t need and typically don’t want. Is this a legal way to compensate employees for the commission portion of their income?

How are they handling taxes? Are they only withholding taxes on your non-commission income? If so, then its illegal. If they are withholding taxes from your regular pay, to cover the commission portion of your income as well, then it may be legal as long are you are actually getting regular pay that is more than minimum wage. If they are not withholding taxes on the commission portion there is the additional problem that they are likely to issue a 1099-Misc at the end of the year, which means that you will be paying both the employee and employer of social security taxes on that money.

Its certainly tacky on their part. They are actually only paying you about 50% of what the gift card is worth, because the cost of the goods they are selling you is only about 50% of what you are paying for them (there is variation on that of course).

If we are talking about a truly significant amount of money I would suggest looking for another job. If its a fairly small amount of money you might consider saving the cards up to buy Christmas and Birthday presents for family and friends. However you probably should be looking for another job no matter what.

 

[Jennkelly]

How are they handling taxes? Are they only withholding taxes on your non-commission income? If so, then its illegal. If they are withholding taxes from your regular pay, to cover the commission portion of your income as well, then it may be legal as long are you are actually getting regular pay that is more than minimum wage. If they are not withholding taxes on the commission portion there is the additional problem that they are likely to issue a 1099-Misc at the end of the year, which means that you will be paying both the employee and employer of social security taxes on that money.

Its certainly tacky on their part. They are actually only paying you about 50% of what the gift card is worth, because the cost of the goods they are selling you is only about 50% of what you are paying for them (there is variation on that of course).

If we are talking about a truly significant amount of money I would suggest looking for another job. If its a fairly small amount of money you might consider saving the cards up to buy Christmas and Birthday presents for family and friends. However you probably should be looking for another job no matter what.

Thank you for the insight. There aren’t taxes on the value paid via gift card. Always knew it was tacky, never considered legality. They also created a new rule where we can’t use our discount to the store if we use the gift card as the payment method. So yes, they are essentially paying 50 cents on the dollar.

 

[LdiJ]

Thank you for the insight. There aren’t taxes on the value paid via gift card. Always knew it was tacky, never considered legality. They also created a new rule where we can’t use our discount to the store if we use the gift card as the payment method. So yes, they are essentially paying 50 cents on the dollar.

Ok, then yes, since no taxes are being paid they are breaking the law. How long have you worked there? Do they issue 1099's for that part of the income? If so that is another area that's illegal because they would be misclassifying you for that portion of the income. You should report them to both the Department of Labor and the IRS. You report them to the IRS by filling out form SS-8 and by using form 8919 with their tax return instead of Schedule C. The IRS will then investigate the employer, see what they are doing, and fine them up the backside for doing it.

 

[adjusterjack]

I think the state's department of labor would not look kindly on pay by gift card when the gift card can only be used in the store. Wouldn't hurt to file with the state as well.

 

[Taxing Matters]

I am in sales and work in a store that offers 5% commission. However, at the end of the pay period we are given the commission in the form of gift cards to the store. So essentially they are paying us in store credit to only be used at the store I work at. It carries high end items that I don’t need and typically don’t want. Is this a legal way to compensate employees for the commission portion of their income?

In California gift cards must be redeemable in cash by the store that issued it. So you ought to be able to get the cash from the employer by asking to redeem the gift card.

The value of the gift card also must be included in your income by the employer and appropriate taxes withheld on it. I disagree with LdiJ that the failure to do that makes paying you with the card illegal. However, it is obviously a violation of the tax law to do that.

That said, California law requires that payment of wages be by cash, check, or with the employee's consent, by direct deposit. So if the commissions are considered wages then paying you by gift card is illegal. Whether the sales commission will be considered wages for the purposes of that law is something to ask the California Labor and Workforce Agency.

 

[Zigner]

In California gift cards must be redeemable in cash by the store that issued it. So you ought to be able to get the cash from the employer by asking to redeem the gift card.

That's not exactly correct. The law (California Civil Code 1749.5) is "Any gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.". and "... any gift certificate with a cash value of less than ten dollars ($10) is redeemable in cash for its cash value."

 

[izzie02]

Do yourself and other employees there a favor and report them to the labor board. Just a question, did they tell you upfront this is how you were going to be paid? What they are doing is tacky and probably very illegal. They probably will be fined and you will be paid for any commission, along with others who were paid this way in the present and past.

 

[PayrollHRGuy]

Just a question, did they tell you upfront this is how you were going to be paid?

That matters not at all.

 

[NeilTheCop]

California Labor Code Section 212

(a) No person, or agent or officer thereof, shall issue in payment of wages due, or to become due, or as an advance on wages to be earned:
(2) Any scrip, coupon, cards, or other thing redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.

Seems to cover being "paid" via gift card