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What is a Commission Agreement?
A Commission Agreement contains the details and obligations between an employer and an employee paid on commission. It is used commonly in jobs involving sales where the agents are paid according to their productivity, when they hit their sales targets, or when they meet the goals and requirements set by the employer. Agreements of this nature are not the same for all as it is unique to each person paid on commission.
Why do I need a Commission Agreement?
Commission Agreements serve the interests of both the employer and the sales agents or contractors. Here are some benefits in securing a Commission Agreement:
- Employers can make sure that they are protected against actions involving competition by the sales agents or contractors.
- Employers can bind the sales agents or contractors to non-compete and confidentiality clauses and ensure that the temporary employees do not sell what they know to the employer’s competitors.
- Employees can feel secure that they will be paid commissions if they work hard and meet their goals.
- Employees will know what they need to do to get commissions, when they will be paid and how much they will be paid depending on their performance.
- It reduces the risk of disputes between parties and removes any form of uncertainty as to the payment of commissions and the obligations of each party.
What are the clauses in a Commission Agreement?
- Goals or Targets – What are the goals or targets that the sales agents or contractors must reach? This is indispensable in a commission agreement. For this type of employment to become a job paid on commission, there must be goals or targets that must be reached. This must be clearly stated in the agreement so that the employer will know when he is obligated to provide commission.
- Earning Structure – How much are the potential earnings and what is the earning structure, if any? Sometimes, there is a structure in the payment of commissions. An example here is when the sales agent will get 20% commission if he or she makes a $50,000 sale or a 30% commission if he or she makes a $100,000 sale. This can serve as a motivation too as they will want to deliver better numbers for better commissions.
- Payments – How and when will the sales agents or contractors receive their payments? The mode of payment and the timing must be set out clearly in the commission agreement. For example, the sales agents or contractors will receive the 20% commission after the buyer has made full payment.
- Area of work – Where are the sales agents or contractors allowed to do their work? Sometimes, employer seeks services from several sales agents or contractors. If the employer does not want them to compete against each other as it may not do the company any good, they can state the area where each of the sales agents or contractors can work.
- Other factors affecting commissions – How can actions of other sales agents or contractors affect their commission? There are times when the performance of one sales agent or contractor will affect the others. Such as when there are teams formed and each team will have their own goals. For example, teams are created, and each team has a collective target different to that of their personal targets. Each member will receive a bonus if the team reaches their goal. Structures such as this must be discussed thoroughly and added to the commission agreement.
- Deadlines – What are the deadlines to meet the goals and targets, if any? A classic example is having monthly target numbers. Using the above example of having teams, each member will only get the additional bonus if their team reaches their target for the month. The following month, the team will have to start reaching their collective target again.
- Duration – How long shall the temporary employment run between the employer and the sales agents or contractors? Since the sales agent or contractor is not considered as an employee, the agreement must state how long the sales agent or contractor can provide work.
- House of Work – How many hours or days will sales agents or contractors dedicate to the employer? Since payment is not made on an hourly basis, the commission agreement must state whether the employer would like to have the sales agents or contractors log a certain number of hours daily and/or a certain number of days a week.
- Audit – How are the work of the sales agents or contractors audited? To further protect the interests of the employer, the commission agreement must state when reports will be delivered by the sales agent or contractor. For example, the agent must communicate a sale made before the day ends and provide a report on a weekly basis.
- Dispute Resolution Process – The commission agreement must provide how the parties will settle disputes.
If you have any questions about a Commission Agreement let us know!
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