What Is a Commission Contract?

If you plan on working in a commission-only job, there are several things you must consider. First, you must ensure that you have the appropriate skills to do the job. Another thing to consider is your knowledge of how it works. Thus, it is essential to discuss your employer’s compensation details and terms before you begin the job. This is where a commission contract plays an important role. A commission contract is a business agreement between an employer and an employee. This type of agreement outlines details and information regarding commission rates and payments, as well as the terms and conditions. Obtaining a commission contract protects both parties from deal-breaking and liability.

According to the Bureau of Labor Statistics, the employment rate of real estate brokers and sales agents in the United States is expected to grow 7 percent from 2018 to 2028.

In Statista figures from 2018, 86 percent of home buyers contract real estate agents when searching for homes in the United States. 

Based on Statista, there are 306.5 thousand real estate agents and broker employees in the United States in 2016.


The Essential Clauses in a Commission Contract

A commission contract is an essential employment contract that lays out the terms and obligations of a commission-based employee. A well-written and properly drafted commission contract should include appropriate components to make the contract informative and accurate. Here are the essential clauses that should be present in your commission contract.

Basic Information. The first essential clause in a commission contract is the basic information of the parties involved, which are the employer and the employee. This should present the complete name of both parties, addresses, and phone details. This should also include the name of the company that the employee will be working with.Duties and Responsibilities. The next essential clause that should be present in a commission contract is the duties and responsibilities of the employee for the employer. The scope of work should, in great detail, be explained. Specify the job-related duties and responsibilities, as well as the other responsibilities that the employee will work on if there is any.Commission Structure. In this section, the specific commission details should be outlined in the commission contract. The contract should present how the commission pay is earned by the employee. In some instances, there is a difference in terms of pay when that employee has booked a sale and when it is actually paid by the buyer. It should also be clear in the contract how it is being calculated. It should also be necessary to discuss in the contract the employee’s compensation benefits.Commission Pay Schedule. Besides the commission structure, the commission contract should also state the payroll schedule. It should be precise in the commission contract the commission payment schedule, as well as the number of times the payment of commission should take place. In some cases, the payment is usually twice a month, depending on the company.Documentation. This section in the commission contract should explain that the employee is authorized to use company-related documents and forms for sales activities. However, it should also be discussed in the contract that company-related documents are confidential for professionals outside the company. And, producing printed copies of said company documents are prohibited unless stated by the employer.Non-Compete Clause. Although working on a commission-based job allows an individual to do freelancing, it should be clear to the employer that working on competing companies is prohibited. Thus, another essential component in a commission contract is the non-compete clause. This means that the employer discourages or prohibits an employee from entering into a similar position from a competing company.

The Advantages of Working on a Commission-Based Job

Working on a commission-based job like a sales rep allows you to earn more than salaried positions employees do. To do this, you just need to generate more sales. Although this industry sometimes has ups and downs, it certainly has several advantages. Below are the pros of working on commission-based jobs.

You can choose your schedule. A commission-based job is a flexible one, which means you get to choose a flexible daily work schedule that will balance both your personal and professional errands. This promotes morale and employee satisfaction. A commission-based job is good for job-seekers who want a work-life balance.You control your income. Since the basis of your compensation in a commission-based job is through the sales you make, it is your responsibility to make earnings. Hence, you have to work hard on hitting the number of sales required by the employer to generate income. Your success in this industry is in your own hands.You have unlimited earning potential. Another advantage of working in a commission-based job is that there are no limitations on how much you should make. Most commission-only jobs have no earning ceiling. Therefore, you can make as much income as you want by selling more goods and services.You know how much you make. Unlike salaried position jobs where you get the same monthly income regardless of how much effort you put through at work, commission-only jobs give compensation that will reflect the sales you make. It also enables you to assess and evaluate your performance monthly for whether or not it needs improvements.You work independently. The thing about commission-based jobs is that you will use your utmost communication and sales skills to make sales. Hence, you can make your strategies to engage with clients to close a deal. And, as long as you hit what the employer is required to make, they probably would not mind how you spend your work time.Your hard work is recognized. In a commission-based job, your hard work is recognized and appreciated by your employer. And most importantly, the more you work hard, the more paychecks you receive. This also lessens the burden of thinking you are not compensated well when you have worked hard in everything you do.

How to Write a Commission Contract

Before an employer hires a new employee for a commission position, it is always necessary to set forth terms and conditions for the job. And that is why both parties need to secure a commission contract. A commission contract is a written document that describes the work agreement between the two. Hence, a commission contract must be professionally written and in great detail. So, if you are writing a commission contract, you might as well get through the following instructions on how to make the contract accurate. Check out the steps below.

Step 1: Present an Introduction

Begin drafting a commission contract by writing an introductory phrase. In the introduction, you have to state what the agreement is about and who the parties involved. It is also important to include the position of each party. For example, this commission contract is entered into between the employer or company’s name and the employee’s name. The contract also should include phone details and addresses of both parties.

Step 2: Describe the Job

Once you have already started with an introduction, the next thing you need to do is to describe the terms of service. This means that the commission contract must lay out what the employee is required to do under the company. However, the scope of work is not only limited to the job-related responsibilities, but an employer can also add other duties in the commission contract as long as it is discussed with the employee, and the latter agrees to it.

Step 3: Add the Commission Details

Now that the scope of work is clear and defined, you need to add in the commission contract are the commission details. This section in the contract should be clear with both parties. The employer must outline when and how the commission-based employee earns the commission payment. It is also essential to discuss how the commission is calculated, and the average percentage the employee will get after sales are made. The commission contract should also present how often the commission pay takes place in a month.

Step 4: Include an Authorization Clause

After providing commission details on the commission contract, you may proceed with writing an authorization clause. In this area, it should be stated that the employer or the company authorizes the employee to sell goods and services on their behalf. The authorization clause in the commission work contract should also include that the company allows the employee to make use of company-owned documents and forms.

Step 5: Specify Terms and Conditions

Next is adding the terms and conditions agreed by the parties. The terms and conditions or T&C are the do’s and don’t of the contract, and the person on service must abide. The terms and conditions may be of various forms, such as liabilities, cooling-off periods, etc. An employer can also set conditions for the employee regarding the use of documentations or add a non-compete clause that prohibits the employee from working with competing companies under the same position.

Step 6: Finalize with an Acceptance

End your commission contract with an acceptance. This means that both parties must sign the commission contract and then date it. Signing the contract signifies that both employer and employee agree to and understand its contents. In every business contract, a signature from the people involved is necessary to avoid confusion and problems in the future.


When is a commission contract necessary?

A commission business contract should be of use once an employer hires a new employee under a commission position. This is to outline terms and conditions regarding the compensation rate and details.

Is commission-based pay benefits for employees?

Yes, commission-based pay is beneficial for employees because, with this, they are based on the number of sales they make. Hence, this will give them the motivation to go beyond the minimum job requirement to receive a higher commission pay.

What is the benefit of commission-based pay for employers?

Employers benefit from a commission-based pay because they are only required to pay their employees once there is a sale. This also means that employers will not pay for works that are not related to sales.

How to calculate commission?

Employers have different structures as a basis for the calculation of employee commissions. The simplest form is the gross sale commission, where an employee can receive an average of 20 to 30 percent of the commission from the sale.

Are commission-based jobs worth it?

The commission-based job is the avenue for job seekers that like being in a challenging field. However, just like any other job, commission-based jobs have ups and downs. But, for some professionals working in this platform, commission-based jobs are worth it as long as you have the skills needed to succeed, and it fits the job description.

The importance of business contracts like the commission contract is that it outlines the full understanding of terms and scope of work between two parties. And business contracts ensure that there are no misunderstandings or problems once the work starts. So before you enter into a commission-based career, it is always important to discuss terms with your employer through a commission contract to secure your resources and rights. Looking for a professionally written commission contract? Check our templates now!