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The Facts about Commission Agreements

Do you pay sales representatives with commissions each time they make a successful sale? If so, you will need a sales agent commission agreement to outline the details of the commission to be paid by your company to sales representatives. Having this document in place can be an important part of protecting your business from liability. Here’s what you need to know about sales commission agreements and how they work.

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Agreements for Employees Vs Independent Contractors:

The type of commission agreement that you will need will depend on the legal relationship between the sales representative and your business. If you employ your sales representative, you will need to use a sales commission agreement for employees, which will outline the details of any commission that the employee is entitled to in return for making sales on top of their basic salary. On the other hand, you will need to use a sales commission agreement Australia for sales reps that are independent contractors or freelancers. Using the correct agreement is important for income tax since you will be required to withhold income tax from employee pay, but not when paying a freelancer.

The Sales Commission Plan for Your Company:

Your business should have a sales commission plan, which will form the foundation of the sales commission agreement that you provide to either employees or independent contractors. You should use this to ensure that you come up with a comprehensive contract that covers a range of potential situations that could occur in the future. It should include all the various aspects of your sales commission plan, including:

When Commission is Earned and Paid:

The agreement should clearly state when a sales representative earns a commission. For example, they might earn a commission when an order is booked, or only when it is paid for. You should also set out information regarding when commissions are to be paid, and the date up to when each payment amount will be calculated.

Commission Structure and Formula:

The agreement should make it clear how your commissions are structured, regardless of whether you are paying commission only to a freelancer or an employee who is paid a salary plus commissions. You should include the amount or the percentage that an employee will earn for making each sale, and the equation used to determine the sales amount on which the commission is calculated.

Refunds, Cancellations, and Defaults:

While every sale made by a business will be a final one in an ideal world, there are several events that could reverse a sale. Whether a customer cancels service within the first few days or returns a product for a refund, the agreement needs to include any of these situations and set out exactly what the process is regarding the sales representative’s commission if this happens. For example, your business might pay a reduced commission rate if the sale is cancelled after a certain time. It’s also important to detail what happens with a commission if an employee resigns or is terminated.

Commission can be an ideal way to incentivise sales representatives, but if you pay using this structure, it’s important to have a clear commission agreement in place.

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