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payroll

Commission

Variable pay based on sales or performance.

Commission is performance-based compensation tied to sales results, typically calculated as a percentage of the sale price or profit. Structures include straight commission (100% variable), base plus commission, tiered rates (higher percentages at higher volumes), and draws against commission. Commission plans must be documented in writing and comply with state wage laws.

Example

A sales representative earns a $40,000 base salary plus 8% commission—closing $500,000 in annual sales generates $40,000 in commissions for total compensation of $80,000.

Why It Matters for Your Business

Commission structures directly influence sales behavior, so designing the right plan aligns your team's incentives with your business goals.

Practical Tips

  • •Put commission plans in writing and have employees acknowledge them to prevent disputes.
  • •Set commission rates that are motivating but still leave healthy margins for the business.

Related Terms

Bonus

More Payroll Terms

Employee Benefits

Non-wage compensation like health insurance and retirement plans.

Gross Pay

Total earnings before any deductions.

Net Pay

The amount received after all deductions.

Overtime Pay

Additional compensation for hours worked beyond 40 per week.

Hourly Rate

Pay rate calculated per hour worked.

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Accounting 101 GuideFinancial Statements GuideTax Deductions GuideFinancial Reports Feature

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