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Commission Pay 101: Everything Employers Need to Know
Safira Adnin
October 16, 2024

When it comes to paying employees, not everyone receives a standard paycheck twice a month. If you’ve heard someone mention they’re earning a commission or will receive one after a sale, it means they’re working on a commission-based pay model.

Employees on commission pay can be found in many industries, and they’re typically driven by factors like performance, product sales, or revenue goals. Commission pay is often linked to specific targets and can either be a standalone pay model or paired with a base salary.

In this guide, we’ll walk you through how commission-based pay works, the benefits of offering it to your employees, and the pros and cons of using this compensation model. We’ll also cover how to calculate commission pay to ensure everything runs smoothly.

Ready to dive in? Let’s explore how commission-based pay can boost performance and align with your business goals.

What is commission pay

Commission pay is a compensation structure where employees earn a portion of their sales as part of their income. This means they receive a percentage or fixed amount for each product or service they sell.

Essentially, the more they sell, the more they earn. This pay model is designed to motivate employees to drive sales and boost their performance.

For employers, offering commission pay can be an excellent way to incentivize sales teams, aligning their success with the company’s revenue goals. It’s a system that rewards hard work and can be particularly attractive to employees who want to maximize their earning potential based on their performance.

Commission-based pay works best in environments where performance is directly tied to sales and measurable results. It encourages employees to go the extra mile, increasing sales, and contributing to business growth.

This approach provides a clear win-win for both the company and the employee: employees have the opportunity for uncapped earnings, while employers benefit from a motivated sales team that’s focused on bringing in results.

Who receives commission pay?

Commission pay is commonly offered to employees in roles where generating revenue is a key part of their job. These roles typically include sales positions where performance is tied directly to the company’s income.

Here are some examples of jobs that often receive commission-based compensation:

  • Sales Representatives: Whether in retail or B2B, salespeople earn commission based on the products or services they sell.
  • Real Estate Agents: Their earnings are tied to the value of properties they sell, often receiving a percentage of the sale price.
  • Insurance Agents: They earn commission for every insurance policy they sell to clients.
  • Financial Advisors: Some advisors receive a commission based on investment products they help clients purchase.
  • Freelancers and Contractors: In areas like marketing or advertising, freelancers may be paid on commission for delivering specific revenue-generating results.

How does commission pay work?

Employers can implement a range of commission structures to reward and motivate employees, each offering different benefits depending on the industry and goals. Here’s a breakdown of a few common commission structures:

Variable Commission

In this model, the commission rate varies based on the employee’s performance. For example, employees may earn higher commission rates once they surpass certain sales targets.

This structure encourages top performance, as workers are incentivized to exceed their goals to earn higher payouts. Employers benefit from this model by being able to scale commissions based on business performance and needs.

Straight Commission

This is a compensation plan where employees earn solely based on their sales performance, without any base salary. Employees earn a percentage or fixed amount for every sale they make.

While this model offers high earning potential, it can be risky, as income may fluctuate based on market conditions. Industries like real estate frequently use straight commission models, where agents only make money based on successful property sales.

Salary Plus Commission

This plan offers a combination of a guaranteed base salary along with commissions based on sales. It’s popular in industries like retail and B2B sales, where workers enjoy the stability of a fixed income while also having the opportunity to earn more based on performance.

This structure motivates employees to sell more while providing financial security, making it attractive to those looking for a balance between stability and growth potential.

Draw Against Commission

Draw against commission is like giving your employees a safety net for their earnings. Essentially, it’s a guaranteed advance on their future commission. Think of it as paying them a baseline salary upfront, but it’s deducted from the commissions they’ll earn in the future.

This way, employees have a consistent income, even during slower months. Once they start earning higher commissions, the advance is repaid through those earnings. It helps keep cash flow steady for the employees while motivating them to perform and surpass their targets.

Benefits of commission pay for employees

Commission-based pay can be highly motivating and rewarding for employees. Here’s how:

  • Unlimited earning potential: Employees can directly benefit from their hard work with no cap on how much they can earn, making it a powerful motivator to succeed.
  • Performance rewards: Instead of a flat salary, employees are rewarded for their actual achievements, offering a greater sense of accomplishment and job satisfaction.
  • Ownership over earnings: Employees have more control over their income since it’s tied to their performance, giving them the opportunity to truly own their work and impact their pay.
  • Flexibility: Often, commission-based roles offer more flexibility in terms of work hours and location, which is an appealing benefit for those looking for a better work-life balance.

Benefits of commission pay for employers

Commission pay isn’t just beneficial for employees—it offers several advantages for employers as well:

  • Drives revenue growth: By directly linking compensation to sales performance, employees are motivated to work harder, which in turn boosts revenue and company growth.
  • Cost-effective: Commission pay ties compensation directly to performance, making it an efficient way to reward employees without incurring unnecessary costs.
  • Attracts and retains top talent: An attractive commission plan helps lure in competitive, high-performing talent and keeps them engaged with clear financial incentives.
  • Encourages teamwork: With shared sales targets, commission-based pay can motivate employees to work together and align toward common goals.
  • Flexible pay structure: It allows businesses to scale pay based on their financial situation, adjusting the commission rates depending on market conditions or company needs. This ensures companies maintain financial stability while rewarding good performance.

The pros and cons of commission-based pay

Commission-based pay structures are commonly used, and for good reason—they’re effective in motivating employees and driving sales. However, if you’re considering implementing this type of pay, it’s essential to weigh the benefits against potential challenges. Let’s take a closer look at both sides.

Pros of Commission-Based Pay

  1. Boosts Motivation
    When employees know their paycheck is directly tied to their sales efforts, they’re more motivated to perform well. The more they sell, the more they earn. This leads to employees actively seeking ways to improve their skills, whether through development courses or on-the-job learning, which ultimately benefits both the individual and the business.
  2. Encourages Goal-Setting
    Commission-based structures naturally promote a goal-driven mindset. Clear sales targets or performance metrics help employees focus their efforts on achieving specific outcomes. When the company sets daily, weekly, or monthly sales goals, employees have something concrete to work toward, which helps maintain engagement and drive results.
  3. Fosters Investment in Company Growth
    Commission-based pay aligns employees’ interests with the company’s success. As they increase their sales, they not only earn more, but they also contribute to the company’s growth. This cycle of success creates a more engaged workforce, which leads to more opportunities for growth—for both the business and its employees.

Cons of Commission-Based Pay

  1. Income Instability
    One downside is that commission pay can result in fluctuating income for employees. Market conditions, seasonality, and customer demand can all impact sales, leaving employees with lower earnings during slow periods.
  2. Pressure and Stress
    While some employees thrive in a commission-based environment, others may find the pressure to perform stressful. The constant need to meet sales targets can lead to burnout, especially if they are unable to control factors that affect their ability to close deals.
  3. Risk of Short-Term Focus
    Commission-based structures can sometimes encourage employees to focus on short-term wins rather than long-term customer relationships. This could potentially harm the business in the long run if employees prioritize immediate sales over maintaining a loyal customer base.

How to calculate payroll for commission-based pay

So, you’ve decided to implement commission-based pay. Great! Now comes the part where you figure out how to pay your employees. Don’t worry, it’s easier than it sounds. Here’s a step-by-step breakdown:

1. Develop Your Commission Structure

First, set clear terms for the commission plan. Will it be a flat percentage or a tiered system? What percentage of the sales can you afford to pay as commission? Maybe it’s 5% for successful upselling or new business, or a flat rate for every sale. Whatever it is, lay it out in writing so everyone is clear on the terms from day one.

2. Calculate Commission Based on Sales

At the end of each pay period, tally up the total sales for each employee and apply your chosen commission structure. If your employees are also earning a base salary, don’t forget to add that in. Make sure to factor in taxes and any other deductions. Once you’ve done that, you’ll know how much each employee is owed.

3. Set a Payment Schedule

Decide how often you’ll pay out commissions. Will you do it monthly, or after a certain number of sales? The faster you pay commissions, the more motivated your team will likely be to hit those targets. Whatever you choose, make sure the payment terms are clear and consistent.

4. Keep Track of Sales and Commissions

Set up a simple but effective record-keeping system. Keep track of sale dates, amounts, products sold, and which employee made the sale. You’ll want this information easily accessible for payroll processing and any employee inquiries.

5. Use Payroll Tools

Consider using payroll software to automate the process. There are plenty of tools available that handle commissions, taxes, and direct deposits, ensuring everyone is paid on time and correctly. A good payroll tool can take the stress out of the process and help you avoid manual errors.

Build your borderless team with Glints today

Glints TalentHub is our complete talent solution that covers all aspects of talent acquisition, management, and development. Our team can help you access the extensive talent pool across Southeast Asia and build great teams quickly and affordably. Simply schedule a call with us and our dedicated experts will be thrilled to guide you in your journey towards building a borderless team.


This article is brought to you by Glints TalentHub. Leading companies are actively building their borderless teams in Southeast Asia, Taiwan, and beyond. However, the prospect of going borderless can be daunting due to complex regulations and cultural ambiguities. With Glints TalentHub, you’ll have a dedicated team of in-market legal, HR, and talent experts by your side at every step of the way.

Glints TalentHub offers an end-to-end, tech-enabled talent solution that encompasses talent acquisition, EOR, and talent development. We empower businesses to leverage the strengths of regional talent efficiently to build high-performing, cost-efficient teams.

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