What is commission

Commission-based salary is a flexible way of paying employees that’s especially common in sales and brokerage industries. This type of pay varies depending on how well an employee performs. In this article, we’ll explore the details of commission salaries, how they’re used, the rights of employees who earn them, and the key bookkeeping practices needed to manage this type of compensation.

What is commission pay?

Commission pay is a flexible compensation structure that directly ties an employee’s earnings to their performance. Unlike a fixed salary, which stays the same, earnings from commissions can go up or down depending on how well the employee meets specific performance goals. Commission pay is usually paid in addition to a base salary. The base salary ensures a consistent income, while the commission serves as a reward for good performance.

Commission pay may motivate employees to work for additional salary. In some professions, commission salary stands alone, making an employee’s total pay depend entirely on their 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.

A system with both fixed salary and commission can motiviate employees to put in their best effort. This can lead to success for individual employees, but it can also effect your business in a positive way.

Rights of employees with commission salary

While commission-based compensation can lead to higher earnings, it also carries risks tied to changes in the market and individual performance levels. 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.