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Our blog offers important resources, helpful articles, and practical ideas on the human resources topics that matter to you.
Our blog offers important resources, helpful articles, and practical ideas on the human resources topics that matter to you.
Home / Media / Blog / The Possibilities of Commission Pay
Commission pay is synonymous with outside sales positions, but are there other possibilities of commission pay beyond reaching sales quotas?
Commission Pay: The Definition
Commission pay is any money paid to an employee for the sale of a product or a service on behalf of their employer. Commission pay can be a set percentage of sales or a flat dollar amount based on sales volume. The most common commission structures are:
Commission Pay: The Fine Print
Commission pay is not attractive to everyone. It adds an element of uncertainty to an employee’s income that can be off-putting to the risk adverse or sales professionals who are new to their careers. Employers should keep attuned to their market and to those companies they compete with for staff to gauge the compensation design that will attract the most qualified and promising employees and really grow their business.
Additionally, members of your sales teams employed in positions that do not qualify for the DOL’s sales exemptions must receive the equivalent of at least minimum wage for all hours worked in each pay period and overtime for all hours over forty in a work week. Various states have separate requirements for commission exemptions, commission agreements, and different definitions of inside and outside sales roles. We strongly recommend you consult with an HR or employment specialist to determine if your employees are subject to additional wage and hour regulations based on the type of work performed and their worksite location.
There is, however, some flexibility with the timing of commission payments. Commission can be paid in conjunction with an employee’s base salary (if applicable) or at a completely separate time. For example, it’s perfectly legal for an employee to receive her salary bi-weekly and her commission payments monthly.
Commission Pay: The Possibilities
Commission pay is an effective incentive to increase productivity and the rate of a company’s growth, but unless you’re managing a team of outside sales professionals, it likely is not a tool in your current incentive program. But should it be? Possibly.
The Retail Exemption. The Department of Labor allows commission for retail employees through its Retail Exemption, an exemption that can free qualified employers from their overtime rate obligations if their retail employees have sufficient commission earnings. With this exemption, the earnings of non-exempt employees can be driven by their sales numbers through a legally vetted method that will not increase their overtime pay rate.
For purposes of this exemption, qualified employers are:
Taking the long view. Another option is a commission program designed to recognize contributions beyond monthly sales quotas, such as:
These programs reward employees for creating an atmosphere where future and repeat business become reliable sources of company income.
Commission vs. profit sharing. Many employers look for ways to incentivize employees to meet or exceed company sales goals, but not all have employees who meet the traditional definition of sales. For these companies, a profit sharing plan might be a good compromise. Both commission and profit sharing programs are designed to motivate employees for their efforts in reaching sales and business growth goals. This, however, is where the similarities end.
Interested in other current employment trends? Click the link to view the recent blog: Labor Laws for September 2024 or check back for more on human resources, payroll, insurance, and benefits.
This article does not constitute legal advice, and there are subtle variations in employment law as it pertains to these topics, depending on where your business operates. It is strongly suggested that you seek consultation or legal counsel before making decisions about policies.
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