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Commission

Wage & Pay

14 May 2025 (Last updated 3 Dec 2025)

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The basis of employee remuneration can vary and can be based on wages, salary, commission, piece rates or a combination thereof. Some industries and roles may offer commission to employees on top of a wage or salary to encourage performance. Commissions are just one of the ways employers can motivate employees to maximise their potential and productivity.

If intending to engage an individual on a commission-only basis, employers should be aware that employees must still be paid the minimum wage. In this guide, we discuss the definition of commission, eligibility for commission pay and employer obligations.

Definition

Commission is a form of remuneration made to an employee after they complete a task, complete certain projects within a certain period, or reach a target. Generally used as an incentive in sales-based roles, commission can be offered in a variety of situations. For example, when an employee is paid based on the sales they have made or other targets they have reached, they might receive commission in the form of a percentage of the total value of the sale made.

Commission payments are typically calculated based on a percentage of the sale or transaction value. This means that the amount that an employee can earn will vary depending on how much they work. Depending on the industry, paying an employee commission might be more practical than paying them an hourly wage.

Types of commission

There are different types of Commission available. Companies vary in the way they set and pay commissions.

  • Straight commission - Employees are only paid when they make a sale and these commission are typically higher.
  • Base salary and commission - A mix of fixed salary and commission which allows employees some security and stability and offers the potential for higher earnings.
  • Tiered commission - In this type of agreement, the commission increases after achieving certain sales thresholds. This motivates employees to achieve more. For example, 10% commission is earned up to $100k of sales, then 15% commission is earned from $100k up to $200k and so on.
  • Revenue commission - The employee earns commission per sale.
  • Gross margin commission - The commission is based on profit, not on sales. It encourages employees to focus on profitability and the bottom line.
  • Residual commission - The employee earns commission if the account generates revenue. This is generally used for recurring business models.
  • Draw against commission - The employee gets guaranteed pay, which is later balanced against commission. It helps new employees settle in and stabilise.
  • Territory volume commission - Commissions are split based on regional performance. This is a good option for team-based selling, but the drawback is it that it may de-incentivise top performers and high earners.
  • Multiplier commission - The base commission is adjusted based on performance against various targets and KPIs. This type of commission can be complex, but it allows to performance to be measured multi-dimensionally.

Benefits of commission schemes

  • Motivates employees to work harder - Commission pay can be highly motivating for those in sales and marketing. Giving employees an incentive to perform better can greatly increase sales and productivity for the business.
  • Helps manage payroll costs - Compensating employees based on commission can help manage payroll costs effectively. Since employees are paid depends on the sales or income they generate, employers can keep their costs down, particularly for employees who do not perform well.

Disadvantages of commission schemes

  • Aggressive tactics - Sales is already an aggressive, high intensity job and with the temptation of commission it can push employees to rely on unethical or risky tactics. They may become focused on the commission and lose track of other goals.
  • Unpredictability - Not all months will be the same and the unpredictability can cause financial instability.
  • Discourages team building - Earning commission is a highly individualistic role and it may discourage team building as employees will be focused on achieving their individual goals and targets without considering company goals.

Difference between commission and bonus

A bonus is usually associated with performance. Employers pay a bonus in addition to the employee’s base salary. Employers can pay bonuses like a commission when the employee meets previously agreed upon performance measures. Employers only need to pay bonuses if there has been an agreement to provide a bonus. A commission is directly tied to sales, whereas sales may be only one of many factors in deciding to pay a bonus.

Commission and the minimum wage

In cases where employees are paid commission only and will not receive an hourly wage or annual salary, they must still be paid at least the minimum wage. This means an employer cannot underpay an employee for the hours they worked, even if they have not met the sales goals or targets.

At the other end of the spectrum, commission can be capped at a certain amount, allowing employers to have control over the maximum amount they will pay.

Commission agreements

To avoid misunderstandings and set clear expectations the parties should record the commission scheme in an agreement. Some important considerations include:

  • Will the commission be calculated on sales including or excluding GST?
  • Will the employer pay commission only once the client/customer has paid?
  • If goods are returned, will the employer deduct commission from the next pay cycle?
  • How will the employer calculate and pay commission if employment ends abruptly or partway through a commission period?
  • If the employee is paid commission based on a percentage of value of sales made, then what are the criteria around reducing or changing prices?

Manage commission with ease

If you are considering offering commission or bonuses should ensure that you have the relevant resources and agreements in place. Peninsula has worked with thousands of businesses in New Zealand supporting them in matters of employment relations and work health and safety. For assistance on managing commission-based employees, call the team at Peninsula.

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Remuneration

You may use different terms or words when discussing payments associated with jobs. Some of the common terms we often hear include salary, wages, pay, and remuneration. Employers in Australia need to be aware of these terms, their meanings, and their differences. It is crucial that they understand their responsibilities and how each term covers a different aspect of payment. Understanding these terms is important as it will help you avoid underpayments, and any potential penalties associated with underpayments. In this guide we explain remuneration, what is a remuneration package, and the key differences between remuneration and salaries for employees. Remuneration In Australia, it has different meanings in different states when it comes to worker’s compensation or premium calculation. For example, in New South Wales, the 1987 Act says, generally, a payment to a worker is ‘remuneration’ if it is made to, or for the benefit of the worker. Remuneration is any type of compensation or pay for providing services. The term includes pay in the form of a salary, wage or commission, but can also incorporate non-monetary incentives and allowances such as a company car, medical plan, accommodation, or meals. Competitive remuneration can assist in attracting top quality candidates and make existing staff happier and more productive. Extra allowances like bonuses and holidays can incentivise performance and retain key staff for longer as well as attracting more talented employees. To ensure alignment, it is recommended businesses develop a remuneration policy. This policy could incorporate an outline of the guiding principles that decide how the company compensates staff and provide clarity in terms of current market rates, as well as superannuation, minimum entitlements, and any extra benefits. Remuneration Package Remuneration packages are based on a mutual agreement between the employer and employee. For this reason, employers are reasonably free to structure remuneration packages as they see fit if the employee agrees. However, the package must also satisfy the minimum pay and conditions of employment under the National Employment Standards (NES) contained in the Fair Work Act 2009 or the minimum wage under the applicable Modern Award or enterprise agreement covering your employee for the employee’s classification. It should also meet any additional requirements in the employment contract. The remuneration package should be structured according to the employee’s role and responsibilities, industry standards, and the current market rate for similar positions, taking into consideration the location of work and any skill shortages within the industry. Below are the most common types of remuneration and their meanings. Commission Pay Employees on a commission agreement are paid according to their results, generally the amount they sell. Employees are generally partially or additionally compensated by commission payments. An employee can be paid on a commission only basis when an employee is award free, or an award or enterprise agreement allows an employee to be paid this way. An employer is usually free to structure incentive-based commission payments as they wish to encourage high performance, however employees must earn at least the national minimum wage or the award minimum rate for their classification. Commonly, sales-based commission will maintain strict criteria of a minimum number of sales or value of deals, and once achieved engage a commission payment of a fixed amount or percentage of value. Piece Rates A piece rate is where an employee gets paid for every piece, item or task completed.   Each job, hour or other unit is paid separately, rather than periodically. For example, the ‘piece’ could be the amount of fruit picked or the number of items packed in a certain period of time. Piece rates are typically paid instead of an hourly, daily or weekly wage – but there are exceptions in some industries. Piecework agreements must be in writing and set out the pay rate per piece and how results are measured. If there is no formal agreement, the employee is not considered a piece worker and must get the national minimum hourly or weekly rate according to their applicable Award. An employee can only be paid via piece rates if their Modern Award or Enterprise Agreement allows for this method of payment, in which case they must earn at least the minimum award rate for the job they do, or if the employee is Award-free then they must receive at least the national minimum wage. Remuneration Bonuses and Incentives Depending on the company remuneration policy and employment contracts, some employees may receive a bonus. These bonuses can be rewarded to an individual for good performance or the whole team after a particularly successful project, quarter, or year. Businesses may offer a range of cash and non-cash incentives. These incentives are designed to reward employees who go above and beyond the expectations of their role. Good incentives not only help employees feel valued and motivated – they can boost employee satisfaction and performance over the long-term. What Is The Difference Between Remuneration, Wage And Salary? Remuneration Remuneration is a broader term that covers both salary and wages. Remuneration is all the compensation an employee receives for services rendered, both monetary and non-monetary. A wage is a rate of pay affixed to the amount of hours worked, generally a short period of time such as per hour, or per day.  A salary is a fixed regular payment, usually monthly or annually, agreed upon in an employment contract, however it is not affixed to the number of hours performed and can incorporate additional entitlements such as overtime, penalty rates and loadings. Wages Remuneration in the form of wages must ensure the employee base hourly or weekly rate is equal to or greater than the National Minimum Wage or the minimum rate of pay mandated under an employee’s applicable modern award or registered agreement for the job that they do. An employment contract can stipulate a higher rate of pay. Where a Modern Award applies to a wage employee,  in addition to the base rate of pay for working their ordinary hours they may be entitled to overtime pay, penalty rates, loadings and allowances, depending on the job they do and when they work and how they are engaged by the business. Salaries A salary describes a regular and fixed payment that you provide an employee. Salaries are paid either once a month, fortnightly, or weekly, but it is often expressed as an annual amount. The frequency of the salary is mentioned in the employment contract. A salary is also subject to change if an employee receives a promotion or reduces their hours. Employees will not usually receive additional remuneration benefits such as overtime pay or penalty rates. However, it is important to remember a salaried employee is still required to receive all the same entitlements as a wage worker under the NES or applicable Modern Award or enterprise agreement for the job they do. This will mean if the employee works excessive hours, the salary package must be of equivalent or greater value than the sum they would have received under the applicable Modern Award or enterprise agreement for the hours they worked, at the time they worked them. A base salary refers to the amount earned by an employee before any additional payments are added or necessary deductions are made. A salary package refers to an agreed amount between employer and employee that consists of the employee’s salary and one or more additional benefits such as share options, allowances, incentives, or bonuses. Before accepting a salary offer, employees can negotiate on remuneration and other policies in their contract. These negotiations can extend beyond the base salary and cover discussions about work arrangements, benefits, and other amenities. Salary agreements should be recorded in writing, and identify which entitlements are included in the payment. The employer should reconcile the agreement annually with the amount the employee would have earned under the award or enterprise agreement for the hours worked. Unlock HR and WHS support with Peninsula Employers have a legal obligation to pay their employees correctly and efficiently. Failure to do this can result in severe penalties. If you need help understanding remuneration and remuneration packages, Peninsula has resources such as factsheets, documents, and webinars designed for your needs. Peninsula offers customised support, advice, and resources for Aussie SMEs and employers. Get access to 24/7 advice and support when you become a client with Peninsula. From recruitment to health and safety, we can provide guidance for every issue. Call us on 1300933819 today.

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