In many industries, remuneration by way of commission is part and parcel of their business model. In others, it is used as an ad hoc way to provide financial incentive for their employees. No matter which approach an organisation takes, there are number of significant issues that the organisation needs to consider when implementing commission arrangements – here are our Top 5.

1. Commission Only Arrangements – generally it is unlawful to pay an employee on a commission only basis unless the employer is permitted to do so by an applicable Award. For example, the Real Estate Industry Award 2010 permits remuneration by commission only where as the Commercial Sales Award 2010 does not. Irrespective of whether they are Award-covered or not, employees must be paid at least the National Minimum Wage or the minimum wage set by an applicable Modern Award, whichever is the greater.

2. Know the Award requirements – Some Awards contain administrative requirements that employers and employees must adhere to before a commission scheme will be operative, for example a requirement that the employer must provide written confirmation of the commission scheme’s terms within 14 days of the employee commencing work. Failure to comply with the requirements of an Award may result in the commission scheme being ineffective and can cost an employer up to $54,000 per breach so it’s worth confirming your organisation’s obligations.

3. Commission as “earnings” – Organisations need to take care when determining when commission will be included in the calculation of employee entitlements. For example, commission payments are almost always considered ordinary time earnings for the purposes of calculating superannuation guarantee contributions, however they need not be taken into account when calculating paid leave entitlements (which are generally based on an employee’s base salary). In the context of unfair dismissals, commission payments are not counted towards earnings when determining whether an employee’s income takes them over the high income threshold as commissions are typically contingency payments that cannot be determined in advance.

4. Strategy – Commission structures should be designed around your organisation’s goals. Encourage teamwork with group sales targets. Keep motivation levels high and steady by matching the frequency with which you pay commissions with the average sales cycle. Think about the proportion of total remuneration that will be salaried vs. commission based, keeping in mind employee’s minimum entitlements as referred to above. Ensure that the commission arrangements are encouraging and achieving the desired behaviours. For example, Aggressive salespeople may be driven by high commissions but if client service and long standing relationships are of more importance, it may be more suitable to pay a higher base salary to retain loyal employees.

5. Clarity – Avoid unnecessary disputes and possible litigation with employees by drafting a clear commission policy. Simplicity is best and can serve to keep employees motivated if they are certain of what they need to do to earn a commission.

PCS can assist your organisation to take an innovative approach to incentivising and rewarding employees through commission schemes. Get in touch with us today to discuss your organisation’s needs.