When you sign an employment contract, it`s essential to pay attention to every detail, including the commission clause. Under a commission-based system, employees earn a percentage of the sales they generate. This clause outlines the terms and conditions for payment of commissions and is a crucial part of any contract.
What is a Commission Clause?
A commission clause outlines an employee`s compensation plan based on the sales they generate. This clause typically includes information on how commissions will be calculated, paid, and when they are due. It should also clearly state what happens if the employee leaves the company before receiving their commission payments.
Why is it Important?
A commission clause is essential because it affects how much money an employee will earn. This clause lays out the terms and conditions that both the employer and employee must follow. It ensures transparency and reduces the chances of conflicts arising between the employer and employee over payment.
Key Elements of a Commission Clause:
1. Calculation Method: The commission clause should specify how the commission is calculated. It should clarify if the percentage is based on the gross or net sale and what constitutes a sale.
2. Payment Schedule: The clause should state when payments will be made, whether it`s monthly, bi-weekly, or quarterly. It should also specify when the first commission payment will be made.
3. Termination Clause: In case the employee leaves the company, the commission clause should outline the employee`s entitlement to receive their earned commission.
4. Performance Expectations: The clause should outline the expected level of performance that will determine how much commission an employee earns.
5. Defining a Commissionable Sale: The commission clause should explicitly state what constitutes a commissionable sale. For example, it could be based on sales made to new clients or on the total value of the sale.
Commission clauses are essential for employees who work in sales roles. They can help motivate employees by offering them an incentive to sell more and provide a clear understanding of the compensation plan. Employers must ensure that this clause is clear and transparent to avoid any disputes. It is advised to have an experienced attorney review the commission clause before signing an employment contract.