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Topic: Contractual clauses

commission clause
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Commission clause

Commission clause

The salaries of employees who are in sales roles is often comprised of a basic element plus guaranteed commission which is calculated according to the number of successful sales made. In this situation, the employee’s written statement of employment particulars will need to specify how the commission scheme operates.

Commission it

If your employees don’t earn commission, then it’s pointless putting a Commission Clause in their contracts of employment. However, if they do and it’s a guaranteed contractual entitlement, it’s essential that you clarify how commission is calculated and when it will be paid. If you don’t, you could be leaving yourself wide open to a breach of contract or unauthorised deduction from wages claim, particularly on the termination of employment. Our commission clause provides for how commission will be calculated and how often it will be paid, and it includes the option for a total cap on annual commission payable. It also provides a clear definition of what constitutes a completed sale for the purposes of commission becoming due. In the absence of a clause to the contrary, on termination of employment, an employee is still entitled to receive commission they have earned but which has not yet been paid, even if the due date for payment falls after they have left employment. However, you can provide in a commission clause that the employee will not be entitled to anything that falls due after termination of employment, or even after notice of termination of employment has been served by either party. Our clause states this. Finally, it includes an overpayments and clawback provision which operates in defined circumstances, including the commission having been paid in error or the employee having committed misconduct in securing the completed sale.

Partial discretion

As an alternative to a contractual commission scheme, which guarantees a certain level of commission to the employee, you can have one under which you have partial discretion. What this means is that the employee has a contractual right to participate in a commission scheme, but you have discretion over such matters as setting the targets and commission rates, the timing and conditions of payment and varying or withdrawing the scheme or any element of it. Our clause covers this alternative option. However, do bear in mind that your discretion is never completely absolute: the employee will still have the right to a rational and non-perverse exercise of your discretion as to the amount of commission payable, whether to withdraw the scheme, etc. Also, if a significant proportion of an employee’s earnings is formed of commission, it’s unlikely you’ll want to have this type of partially discretionary scheme and commission is more likely to be a guaranteed contractual entitlement.

 

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