Definition
A form of variable pay calculated as a percentage of sales revenue or a fixed amount per unit sold. Commission structures are common in sales roles and may form all or part of an employee's remuneration package.
UK Context
Commission payments are subject to PAYE income tax and National Insurance. Under the Employment Rights Act 1996, commission structures must be clearly set out in the written statement of employment particulars. Employers must ensure that total pay including commission meets National Minimum Wage requirements for all hours worked.
Best Practices
- Document commission rates, thresholds, and payment timing in the employment contract
- Calculate and verify that total earnings meet NMW requirements each pay period
- Clearly state how commission is affected by employee absence, clawbacks, or cancellations
Frequently Asked Questions
Does commission count toward National Minimum Wage?
Commission can count toward NMW in the pay reference period it is paid, but employers must ensure that total pay divided by total hours worked meets the NMW rate for every individual pay reference period. Commission earned but not yet paid cannot be counted.
What happens to commission during notice periods?
Unless the contract states otherwise, employees are generally entitled to continue earning commission during their notice period. The specific entitlement depends on the terms of the commission scheme and the employment contract.