What is considered "best practice" with regard to payout eligibility and employment status re: incentives and contests/SPIFFs

My answer is different for contests and SPIFFs than for core incentive components. Let’s start with the core incentive component (part of the official compensation package, documented in a signed plan document or employment agreement, representing a portion of the official compensation package, with on-target payout needed to provide market-competitive total compensation). For core components, give some thought to what you’re trying to accomplish with your eligibility requirements. Some companies feel that requiring people to be currently employed at the time the payment is made improves retention and is more fair to the company. Consider the possibility, however, that you will have people who have already decided to leave staying in the role, collecting their base, cementing personal relationships with important customers or prospects, and delaying your hiring of a more committed resource while they are waiting for their incentive payout.

In addition, it is true that payment in this category must be paid regardless of employment status at the time of payment in certain states and industries. The criteria here have to do with the nature of the job (selling, not delivering services or managing sales people), relationship with the company (employee, not a contractor or outside rep), and the mechanics of the comp plan (communicated as a percent of sales, not a bonus). My counsel on the core components is generally to pay them regardless of whether the employee is currently employed at the time of the payment.

There can be some protection here by noting that payments (made following order intake, for example) are an advance against earnings, and that the commission is not earned until the cash is collected. So if the cash is not collected until after the employee has left, the commission has not technically been earned.

Regarding contests and SPIFFs, you are probably safer in not paying unless employed, legally (but check with real lawyers). And you are also probably not risking any unproductive lingering by disengaged employees if you do require people to be present to be paid – mostly because contests and SPIFFs are generally shorter in duration between announcement and payout, and the stakes aren’t as high. It is a very common (and in my view reasonable) practice to only pay for these incentives if the employee is still employed when the payment is made. A good practice in these cases is to make that intention clear in the contest/SPIFF documentation – fine print at the bottom of the flyer/email works fine.

As always, while we can provide some general guidance on this topic, we strongly encourage you to seek additional legal counsel and review of your official sales compensation plan document to ensure it is compliant with federal and state legislation, specific to your company and the location of your sales representatives.