Commission and Commission pay is additional payment options earned based on performance. Depending on the job role, your Commission might subsidize your paycheck or be dependent on it.
You need to know that all types of Commission payments are taxable. Depending on how the company works, you might be paid this Commission monthly simultaneously with your paycheck or bimonthly.
Irrespective of your role or the company you work for, this guide will help you understand what commission pay is and how it works.
Types Of Commission Pay
Not all the Commission pay structures are the same, and it will depend on the employer. Some of the most common types of Commission payment models are mentioned here.
Base pay & Commission
Salary plus Commission is a Commission where the employer will provide you with a base income to the sales employee and also allow you to make a Commission on everything you are making besides the salary.
Employees look forward to this type of Commission pay as they can earn both the Commission and the base salary on the sales that they are making.
The majority of the empires offered this type of payment to the salespeople as a great incentive to boost their merchandise sales, and also, they can do better as they are motivated.
You then know that the more Commission you make, the more money you save or spend. You must know that employers might offer a lower base pay with this structure.
The Straight-Line Commission Plan
Under the straight-line Commission plan, the employee can work on different types of Commission based on how much they can sell to reach the sales quota.
If the sales are just 30% of the sales quota, they will receive 30% of the Commission.
Employers would provide a bonus Commission to incentivize the employees to enhance their sales performance will stop the employees who make the given sales amount of the sales or even exceed those who receive that bonus.
The employer might offer such bonuses only for a given time frame.
Territory Volume Commission Plan
Under the final Commission plan, the employer will pay the Commission to the employee for performing some specific sales work.
For example, they might get the task of bringing new clients for the employer’s business, and they might receive a given amount of Commission for every customer they bring.
An employee can easily earn a residual Commission for the ongoing account for a client that continues to generate income for the employer.
As long as the client continues to make the payment on the account, the employee can also earn a residual Commission continuously. They can keep getting this Commission as long as the client is active, even after they end up leaving the company or the employer.
For instance, all the employees might start an 8% Commission on all sales beyond $1000. Once they reach the given benchmark, the Commission will become 10%.
The same method will be used for underperforming employees but in the reverse direction.
Full Commission Plan
A full Commission is generally known as a straight Commission or even 100% Commission. This type of structure might mean your entire income will depend only on the amount of Commission you are making. Under this structure, the Commission is high. The sales tend to be of higher value, like property sales.
Typically, people employed under this type of structure are independent contractors or freelancers.
While the idea of 100% permission does sound pretty appealing to the freedom of being freelance, the reality is that not several people are willing to live without that given base salary because of the anxiety which comes from not knowing how much money they would be making each week.
For instance, if you sell a product worth $5000, you receive 5% of the total. It is very common for employers to use this method while entering a new market or scaling their business first.
Still, it is very easy to implement and ensure that the topsails representative receives the maximum Commission. Still, instead of receiving a percentage of the revenue, the sales representative gets a percentage of the profit from that given sale.
For instance, a product that sells for $2000 might have overheads of around $800. Insert situation the stage was initiative would receive the percentage of $1200 profit.
Under this, the employees receive hourly plus Commission, similar to the base pay plus Commission, and the entire team has to perform for the Commission to be paid.
As such, all the employees would be motivated to support and encourage each other.
The Graduate Commission includes different types of Commission levels. As for the sales the employee makes. It also encourages the employees to put in more effort to meet and exceed the quotas.
Draw Against Commission
A draw against the Commission includes the employer giving the employer specific advance known as the drop before sales. The employee can keep the draw amount as income if they make more than that in sales.
The extra money they earn is their sales Commission, but there is no guarantee that the employee can earn more than they draw. If the employee fails to make more than the amount, they must return the money to the employer.
When Does The Employer Pay The Commission?
Basically, for every company, the Commission works differently, and it can be either distributed quarterly, monthly, or even yearly depending on the structure of the company or when the Commission is considered an earned Commission.
For instance, a company might define the commission for a person as and when the new client signs a contract.
This means that the employee who sold the deal won’t get the Commission until the signature is collected and the deal is completely verified.
It means that it is just a double check to ensure that the right individual is compensated and the transaction is overall accurate and clean; another example would be while recruiting.
The commission is earned when somebody is hired and stays in the company for a long time. It might even be three or four months. The recruiter does not get the Commission if the new hire leaves before that time.
What Happens If You Leave Your Job Before Getting Your Commission Check?
It doesn’t matter if the Commission is owed to the employee or not after they have been terminated or left a role depending on the different factors like what is defined as earned between the company and the employee.
Still, things can get a little challenging because the company decides what constitutes the Commission. In short, if you do not have anything in writing, there is no guarantee that you will get the Commission after leaving the job.
If you are concerned about the Commission structure of the company, ensure that you ask everything in your interview and when networking to ask thoughtful questions like what is the Commission structure for the job role or how it works.
Advantages of Commission based pay
The advantages of Commission based pay are mentioned here
- Receiving the Commission gives you the total time to build up a relationship. Eventually, you can lead to a better number of sales.
- If you receive a base salary, you have guaranteed the money every month irrespective of your performance but always have the chance to enhance yours.
- You will never lack motivation as your income will depend on it.
How Does Working on Commission Work?
Commission based on the number of sales that you’re making, the number of new customers you bring to the company, the number of new employees who recruit, or the number of client transactions that you make first of the Commission might be specified percentage of your complete sales the number of clients the salaries of the recruited employees or the client transactions.
Is working on Commission Great
Commission-based work can be great if you have the work ethic, confidence, positive attitude and strong interpersonal skills to succeed with this type of work. Commission-based work allows you to earn both a salary and a Commission which can keep you financially safe.
Some Of The Common Commission Based Jobs
The major duty of a travel agent is to meet weekly or monthly sales determined by the company.
Real Estate Agent
Real estate agents advise and help clients while selling, buying or even renting properties. They have a great understanding of the property market and help the clients to get great value from the transaction. Besides taking them to inspect properties, they might guide them through the negotiation process.
A Commission based job is one where the employer pays you for a Commission based on different variables. Depending on the employer and their Commission policy, you can receive or pay a salary besides Commission or get Commission.
Hence, commission pay is a very lucrative offer for employees and it is essential for every organization to try and leverage in the best possible way. For example, if you make a sales Commission of 25% and sell products worth 1,00,000, you will get ₹25,000 as your companion.
The employer might pay you the Commission after they have finalized the business deal and received the funds. Depending on how soon they receive the payment and their Commission plans, you can get the Commission every month, once a year or quarter.
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Business, marketing, and blogging – these three words describe me the best. I am the founder of Burban Branding and Media, and a self-taught marketer with 10 years of experience. My passion lies in helping startups enhance their business through marketing, HR, leadership, and finance. I am on a mission to assist businesses in achieving their goals.