How to Calculate Your Commission Pay Effectively

Commission pay can be a confusing subject for you and your employees. Business owners often wonder how much to pay their staff and what sort of a percentage to use as commission.

To help you understand what you need to do, in this guide we explain what commission pay is and what you have to keep in mind when your employees receive their percentage.

What is sales commission?

Right, so what’s a clear commission pay definition? In simple terms, a commission payment is money paid to a staff member after they’ve sold a product or service.

As a business owner, you can pay your employee a percentage of the sale they have made. Or you can issue a flat financial amount after calculating the volume of a sale.

Another way of looking at commission is as a performance-related pay structure. You have to establish measurable targets for your staff members to meet. There are two approaches to take:

1. Short-term schemes: These are like bonus payments or sales commission for your staff members.
2. Long-term schemes: Fall along the lines of company shares etc.

It is, of course, up to you what route you want to take for paying commission to your employees.

Paying commission

Commission is most common amongst employees working in a sales environment. In sales, employees often have to cold sell products to customers.

The amount of commission they receive can act as an incentive to drive employees onto greater achievements for your business. Commission workers are often paid partly (and sometimes fully) after the number of sales or deals they have made.

But they must still receive the national minimum or living wage. When you pay commission to your staff members, the amount is usually a calculation on the percentage of the goods they sold to a customer.

The result of this is your sales team receive pay based on the amount they have sold. This is, of course, a lot different than the hourly wages many other employees typically face. There are various types of commission.

But one of the most common forms is the on-target earnings model. With this model, establish your commission based pay rates prior to your employees getting to work.

Failing to pay commission

Bear in mind that, as an employer, if you fail to pay your employee then they have the right to:

• Talk with you about why there hasn’t been a payment.
• Request you to set out your pay calculations in writing.

If you’ve included an indication of a bonus or commission in the employee’s contract, and fail to pay them, then you are in breach of their contract.

If this non-payment occurs, then your employee can make a complaint. It can also be an issue that falls under claims for unlawful deduction of wages. It can also fall under constructive unfair dismissal.

If you don’t pay contractual commission, this breaches their contract of employment. This allows the employee to resign and claim constructive unfair dismissal. This is especially the case for commission only staff members.

The legalities of commission

Remember that, as an employer, you legally have to pay your employees the national minimum or living wage. In the UK, for over 25s, as of 2018 the national living wage (NLW) is £7.83 hour.

You can use commission to make up the total of that amount. The result of this is that commission-only jobs are legal. However, you will have to respect the NMW and NLW laws and ensure your staff members receive this amount.

Need help with commission at work?

Still wondering how to pay your staff members sales commission? Get in touch with us today so we can make sure you pay your employees fairly on 0800 028 2420.