What is commission
Commission salary is a dynamic form of remuneration widely utilised in various industries, with its prevalence particularly prominent in sales and brokerage sectors. This form of compensation is characterised by its variability, directly correlating with an employee’s performance. In this article, we delve into the intricacies of commission salary, its applications, the rights of employees receiving it, and the essential aspects of bookkeeping associated with this compensation model.
What is commission pay?
Commission pay is a variable compensation structure designed to link an employee’s earnings directly to their performance. Unlike a fixed salary, which remains constant, commission-based earnings fluctuate based on the employee’s ability to meet specified performance metrics. Typically, commission salary is employed as a supplementary component to a fixed salary, wherein the fixed portion serves as a baseline compensation, often lower than the industry average. This structure motivates employees to strive for additional earnings by excelling in their roles. In certain professions, however, commission salary stands alone, constituting the entirety of an employee’s compensation and making it contingent solely upon individual performance.
When is commission used?
Commission salary is most prevalent in industries where sales performance plays a pivotal role in determining a company’s revenue. In sectors such as sales and brokerage, commission is often structured as a percentage of the sales generated by the employee. The combination of a fixed salary and commission provides a balanced incentive for employees to maximise their efforts, driving both individual and organisational success.
Rights of employees with commission salary
While commission-based compensation offers the potential for increased earnings, it comes with inherent risks associated with market fluctuations and individual performance. To safeguard the rights of employees, it is crucial for the terms of commission, including the percentage or amount, to be explicitly outlined in the employment contract.
In Australia, commission-based salaries are legal under specific conditions. An employee can be exclusively paid on commission when an award, enterprise agreement, or other registered agreement expressly permits such compensation. In these cases, the employee must earn at least the equivalent of the national minimum wage or a relevant award wage. Employers are prohibited from basing an employee’s wage solely on commission; a base rate of pay, meeting the minimum wage set under the relevant modern award, must be provided at a minimum.