CommissionBased

Commission-based compensation is a pay structure in which a portion of an employee’s earnings depends on sales or performance rather than being fixed. It is common in sales-heavy industries such as retail, business-to-business services, real estate, insurance, and financial advisory, as well as on freelance platforms where earnings reflect completed work or outcomes achieved.

Types and calculations vary. Straight commission offers no base salary and pays only a percentage of sales. Base salary plus commission provides a guaranteed minimum income with additional earnings from commissions. Tiered or accelerated commissions increase the rate as targets or quotas are met, encouraging higher performance. Commissions may be a percentage of gross or net sales, and can be subject to adjustments for returns, discounts, or revenue churn. Some plans include draws (advance payments) or residual commissions for ongoing revenue from a client.

Advantages include strong alignment of incentives with company goals, potentially higher earnings for top performers, and relatively simple administration. Disadvantages involve income volatility, potential emphasis on closing deals over long-term relationships, and opportunities for misaligned or unethical selling practices if incentives are not carefully designed. Plans must be clearly defined in contracts to avoid disputes and to address issues such as eligibility, payout timing, deductions, and changes to quotas.

Legal and regulatory considerations vary by jurisdiction and can affect minimum wage requirements, exemption status, and disclosure obligations. Common contexts include sales roles, brokerage services, and contractor arrangements. See also: base salary, incentive pay, commission plan, and performance-based compensation.