Consider This When Structuring Commissions

September 18, 2017

Topics: Employment Agreements

Employers often offer employees additional compensation through commissions on sales.  When structuring commission programs, consider these factors.

First – there are two separate time frames relevant to commissions.  1) When the commission is earned and 2) when the commission is paid.  For example, a commission may be earned when the customer pays an invoice, but all commissions earned in a given month are not paid until the end of the next month.  You need to define both when a commission is earned, and when it is to be paid.

Next, define all requirements to earn a commission.  What must occur for a commission to be considered earned.  Does it require a signed contract? A purchase order? An entry in a CRM program like Salesforce or GoldMine?  Must an order be invoice?  Shipped? Paid for by the customer?  Companies have different requirements.  Specify all requirements for the commission to be earned.

What happens if two sales people claim credit for the same sale?  Who determines if there will be a split and how much it is?

What happens if a sales person leaves the company? What sales will be commissionable and for how long after employment is terminated?

All these points, and others, should be included in a written commission policy, plan or agreement that is signed by your sales people so there is no question as to how commissions should be calculated.

Our experienced employment lawyer can help draft commission agreements that implement protections for your company should commission payments be challenged.  Feel free to reach out to us if we can help.