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