Author: James Anderson

What Is Commission Pay and How Does It Work

You can check out this section of the Workplace Fairness website on what to do if your employer won’t pay you your earned commissions. Highly talented professionals in sales and marketing get more out of commission-based pay since their income relies on how hard they work. The more sales they make, the more generous their compensation will be compared to their less motivated counterparts. One way is the flat commission wherein the employee gets a rate or percentage on any sale that he or she makes.

This means that the employee earns their entire salary based on a percentage of the sales they complete. This can be a very lucrative arrangement for highly talented and motivated salespeople. The percentage they earn on each sale tends to be higher than if they are receiving a base salary, and in some cases this percentage will increase after they achieve a pre-determined goal.

What Happens if I Leave a Job Before Getting My Commission Check?

It’s also a great way to develop a workforce that is proactive and motivated. Let’s say a salesperson closes a deal and then leaves the company right after receiving their commission check, and that client ends up backing out later on and not paying up. That’s a big loss for the company that could have been prevented by redefining the terms of their commission structure. Highly motivated salespeople will earn generous commissions, while their less ambitious counterparts will not.

It may increase incrementally after the employee reaches certain sales goals, either by a dollar or unit amount. In sales, your total compensation could be 50% base salary and 50% commission. So if your total yearly compensation agreement is for $100,000, $50,000 of that is guaranteed for the year and $50,000 is based on how well you perform. When you think of commission, your mind immediately goes to a sales-type role (think of a retail salesperson trying to get you to buy that extra pair of jeans). Commission is popular in most sales jobs because their responsibilities are heavily tied to a company’s revenue goals. Having the opportunity to earn commission—sometimes a hefty amount—motivates those individuals to hit or get close to their quarterly or yearly goals.

1. When accepting a job with commission-based pay, make sure to understand the process involved in calculating the amount.
2. Commission is popular in most sales jobs because their responsibilities are heavily tied to a company’s revenue goals.
3. Do the company’s and role’s revenue goals seem reasonable and realistic?
4. Access and download collection of free Templates to help power your productivity and performance.
5. Muse career coach Theresa Merrill explains that commission is harder to negotiate than other types of compensation—like a signing bonus—because it’s less discretionary and usually a set standard across the company.

You may feel more comfortable making many small sales or going after a few big commission payments. He gets a flat $500 fee for renting the banquet hall or conference room and a 15% commission for every hotel room he rents. Department of Labor, a commission is the sum paid to an employee for completing a task, which is usually selling a certain amount of goods or services. The basic idea is that when you move up, you’re expected to produce more—with the understanding that you’ll earn more as a result.

Variable commission

If you sell a deal where the customer signs on for two years or a special kind of product, for instance, you may earn extra commission for that. Employers often use sales commissions as an incentive to increase worker productivity. If nothing else, agree to revisit the commission structure after you’ve been working at the company for a while, she suggests, and get it in writing. But on the flip side, companies also have the right to protect themselves from employees who may try to rig the system to earn more commission.

Amber is an executive recruiter at a major East Coast recruitment firm. She makes an annual salary of $110,000 and a 20% commission of the annual salary for each role she successfully fills. In March, she successfully hired three executive roles with yearly incomes of $150,000, $180,000, and $200,000. A straight commission means your employer bases your earnings entirely on commission, so you’ll only receive a payment if you close a sale. Straight commission will either be a flat fee or a percentage of the total sale, varying from one business and service to another.

The beauty of this is that the job market really provides both kinds of options—so you can take your pick. As a result, companies will often have what’s called a “clawback” to encourage employees to see deals through to the end. A clawback means that if revenue isn’t collected or a deal falls through, the employer has the right to collect that commission from the employee, or deduct that portion from future commissions the employee earns.

What can be frustrating about this, of course, is that it’s not an easy formula to follow, so it’s not entirely clear what your commission will look like until you receive your paycheck. Professionals who are into sales and marketing deal with tough competition. Employers offer a commission to motivate their employees and make them more productive and generate more sales and attract customers. Some employers decide to encourage teamwork by setting group goals and then dividing commissions equally among team members when quotas are reached. Now that you understand what commission pay is, you’ll see why this pay structure isn’t for everyone.

If you’re promoted or shift into a slightly different role, your commission plan may change completely. For example, if you become a manager of a sales team, your company could institute a floor to your commission structure, or shift your commission to more of a bonus plan. Sales and marketing jobs in many industries, such as automobiles and real estate, generally offer commission-based compensation. It can be part of the salary of an employee or a separate form of income that is paid on a different schedule. That means the more products or services an employee can sell, the higher the amount they receive.

The pros and cons of commission-based pay

When a commission is paid in addition to a salary, it may be included in the employee’s paycheck or paid on a separate schedule, usually bi-monthly or monthly. As a business, you have to be careful about hiring good sales employees who will consistently generate enough income to make back your investment in them. Salary plus commission means you’re guaranteed a fixed salary and earn commission on top of that. Even if you don’t sell anything, you still receive your salary — making your commission more like a bonus. A commission-only pay structure means you can’t depend on the security of more traditional compensation structures, like hourly wages, firm salaries, and overtime pay. Straight commission offers more flexibility in your schedule and you get to decide where you want to direct your energy.

Some people like the security of a fixed income, while others love the thrill of the sales hunt. While many industries set standard commission rates or have policies binding all employees and contractors, presenting a commission structure that benefits both parties is a great way to find a rate that works for you. As an employee, you may feel extra pressure to hit sales quotas because your employer guarantees you salary and benefits. For example, a recruiter might only earn a commission after a recruit has stayed in a job role for 90 days.

The company has a sales goal of $1 million per salesperson, with a 5% commission on annual salary for every $100,000 sold. Caitlin’s yearly salary is $50,000, meaning for each $100,000 she sells, she makes a $2,500 sales commission. A variable commission is when the commission rate depends on criteria stipulated by the company. This means some products, services, or types of sales may garner a higher commission than others, depending on their value to the company.

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