Can An Employer Change A Commission Plan?

Mia runs a growing software sales team in Melbourne. Her first commission plan worked well when there were three salespeople, but now she has account managers, inbound leads, enterprise deals and renewals. The old plan is starting to reward the wrong behaviour, and it's costing more than expected.

If you're in a similar spot, it's completely reasonable to want to update your sales incentives. Commission plans are commercial tools, and your business needs room to adapt as products, margins and targets change.

The tricky part is that commission is often part of an employee's pay. If you change it the wrong way, you could end up with an underpayment issue, a breach of contract claim or a workplace dispute you didn't need.

So, can an employer change a commission structure in Australia? Yes, but the safest path depends on what your contracts, policies and commission documents actually say.

Can An Employer Change A Commission Structure In Australia?

Yes, you can usually change a commission structure in Australia, but you may need consent if the existing commission plan is part of the employee's contract or affects money they've already earned.

The starting point is to work out where the commission entitlement comes from. It might be in:

• The employment contract, offer letter or employee commission agreement
• A separate sales commission agreement
• A workplace policy, bonus plan rules or incentive plan
• An enterprise agreement
• A modern award arrangement, although awards usually deal more with minimum pay than sales incentives
• A pattern of past practice, emails or verbal promises that have become relied on over time

If the commission is clearly contractual, you generally can't just replace it with a less favourable plan because the business has changed its mind. You'd normally need the employee to agree to the change, ideally through a signed variation or a new agreement.

If the commission plan says it's discretionary or that you can amend it from time to time, you may have more flexibility. Even then, you should use that power carefully. A change that's sudden, retrospective or unclear can still create arguments about whether you've breached the contract, failed to exercise a contractual discretion reasonably or in good faith, or created a workplace dispute.

You also need to keep your Fair Work Act 2009 obligations in mind. A commission plan can't be used to avoid minimum wages, penalty rates, overtime, allowances or other entitlements under the National Employment Standards, a modern award or an enterprise agreement.

From 1 January 2025, intentional underpayment of wages and certain entitlements can also be a criminal offence under the Fair Work Act. That doesn't mean every payroll mistake is criminal, but it does mean you should treat commission changes seriously and keep clear records.

Do You Need Employee Consent To Change A Commission Plan?

Yes, you usually need employee consent if you're changing a commission entitlement that forms part of the employment contract.

This is common where the contract says something like the employee will receive 8% commission on all new sales, or the offer letter attaches a commission schedule with fixed rules. If that wording creates a contractual right, reducing the rate or changing the earning trigger without agreement can be risky.

Consent is especially important where the change is less favourable to the employee, such as:

• Reducing the commission percentage
• Increasing targets before commission is earned
• Removing commission from certain products or customers
• Changing from individual commission to team commission
• Adding clawback rules after the employee has already made sales
• Delaying payment until a later event, such as customer payment or project completion

A good consent process doesn't have to be heavy handed. You can explain the business reason, give the employee time to review the new plan, answer questions and record the agreed change in writing.

For example, say Jordan's contract says he earns 10% commission on gross sales, payable monthly. You want to move him to 6% of net revenue because refunds and discounts have increased. That isn't just an admin change. You'd want Jordan to sign a contract variation before the new structure applies.

You should also be careful with employees on awards or enterprise agreements. Even if they agree to a new commission plan, they can't agree to receive less than their minimum legal entitlements. Any commission arrangement needs to sit on top of, or lawfully satisfy, those minimums.

Is Giving Notice Enough For A New Commission Plan?

Sometimes, notice is enough if the commission plan is genuinely discretionary, non contractual or already gives your business a clear right to make future changes.

For example, your employment contract might say the employee may be invited to participate in incentive plans from time to time, and those plans don't form part of the contract. Your separate commission policy might also say you can amend, suspend or withdraw the plan on reasonable notice.

In that case, you may be able to introduce a new commission plan prospectively, meaning it only applies from a future date. You should still give clear written notice and avoid applying the change to deals that have already been earned under the old rules.

There's no single notice period that applies to every commission change. The right amount depends on factors like:

• What the contract or plan says about notice
• How significant the change is
• How long the sales cycle is
• Whether employees have already built a pipeline under the old plan
• Whether targets or territories are changing at the same time
• Whether an award or enterprise agreement requires consultation

If a change will significantly affect an employee's work, hours, roster or role, check any consultation obligations in the applicable modern award or enterprise agreement. Many awards require you to consult about major workplace changes and give affected employees information about the change and an opportunity to respond.

As a practical guide, sales teams usually respond better when you give notice before the next commission period begins. If your plan operates quarterly, introducing the new rules at the start of the next quarter is often cleaner than changing the rules halfway through.

Keep a copy of the notice, the old plan, the new plan and any employee acknowledgements. Fair Work record keeping rules generally require employment and pay records to be kept for 7 years, and commission records can be vital if questions come up later.

What Happens To Commission An Employee Has Already Earned?

You generally can't take away commission that an employee has already earned under the existing plan.

The hard part is working out when the commission is actually earned. A well drafted plan will say this clearly. A messy plan might leave room for argument.

Common earning triggers include:

• When the customer signs the contract
• When the invoice is issued
• When the customer pays
• When the cooling off or refund period ends
• When the product is delivered or the service starts
• When the sale is approved by management

Let's use Mia's software business again. Her old plan says employees earn 5% commission when a customer signs a 12 month subscription agreement, with payment made in the next monthly pay run. In June, Sam closes an $80,000 deal. In July, Mia introduces a new 3% commission plan.

If Sam earned the commission when the customer signed in June, the July change shouldn't reduce that commission. Sam's commission would be $4,000 under the old plan, even if the payment date falls after the new plan starts.

Now change the wording slightly. If the old plan says commission is only earned when the customer pays, and the customer doesn't pay until July, the answer may be less clear. You'd need to look closely at the plan wording, any notice given and whether the new plan deals with pipeline or transitional sales.

Pay slips must be given within 1 working day of paying an employee, and they should accurately record pay and any separately identifiable incentive payments. If a commission payment is owed and not paid, the employee may have an underpayment claim. Underpayment claims are often pursued within a 6 year limitation period, so these issues can come back long after the relevant sale.

Don't forget superannuation. Commission payments can form part of ordinary time earnings in some cases, which means superannuation guarantee contributions may be required. The superannuation guarantee rate is 12% from 1 July 2025. Get payroll advice on the super treatment if you're unsure.

How Do You Write A Clear Sales Commission Agreement?

A clear sales commission agreement should tell everyone exactly how commission is calculated, when it's earned, when it's paid and when the rules can change.

This is where many disputes start. The business thinks commission is payable only once the customer pays. The salesperson thinks it's payable as soon as the contract is signed. Both views might feel reasonable if the plan doesn't say.

A strong commission plan agreement should be tailored to your sales cycle, products, margins and team structure. Templates can be useful as a starting point, but they often miss the commercial details that matter most.

Commission Plan Outline

Here is a practical outline you can use to plan your document. A lawyer should tailor it before you use it with your team.

1. Parties And Role: Identify the employee, their role and whether the plan applies only while they remain in that role.
2. Purpose Of The Plan: Explain what behaviour the plan is designed to reward, such as new revenue, renewals or profitable growth.
3. Eligible Sales: Define which products, customers, territories and channels count towards commission.
4. Commission Formula: State the percentage or calculation method, and whether it applies to gross revenue, net revenue, profit or another amount.
5. GST, Discounts And Refunds: Say whether figures are calculated before or after GST, discounts, credits, refunds and write offs.
6. Targets And Thresholds: Set out quotas, accelerators, caps and what happens if targets are only partly met.
7. When Commission Is Earned: Choose the trigger, such as customer signing, invoice issue, customer payment or completion of onboarding.
8. Payment Timing: State when commission will be paid after it's earned and how it will appear in payroll.
9. Split Deals And Team Sales: Explain how commission is divided where more than one employee contributes to a sale.
10. Clawbacks: Set out any repayment or adjustment rules for cancellations, refunds, bad debts or customer default.
11. Leave And Termination: Explain what happens to commission during leave, notice periods and after employment ends.
12. Changes To The Plan: Say how the business can update the plan, how much notice will be given and whether changes apply only prospectively.
13. Dispute Process: Give employees a simple way to raise calculation questions before they become bigger disputes.

The clearer your agreement is, the less time you'll spend debating edge cases at the end of the month.

What Should You Do If The Current Commission Plan Is Unclear?

If your current plan is unclear, pause before making changes and work out what employees may already be entitled to.

This doesn't mean you can't fix it. It just means you should tidy up the existing position before rolling out something new.

Step 1: Gather The Documents

Collect employment contracts, offer letters, commission schedules, bonus plan rules, policies, emails, spreadsheet calculators and any messages where commission promises were discussed.

Also check whether a modern award or enterprise agreement applies. If your sales employees are award covered, you still need to make sure base pay, overtime, penalty rates and allowances are handled correctly.

Step 2: Map What Has Already Been Earned

List current pipeline deals, closed deals, unpaid invoices and any commission that has been approved but not yet paid. For each deal, identify the likely earning trigger under the current wording.

If there's a possible underpayment, don't ignore it. Work out the amount, correct it through payroll and keep records of how you calculated it. If the issue is significant or repeated, get advice before communicating with the team.

Step 3: Decide What Will Change Prospectively

Separate past entitlements from future rules. This is one of the simplest ways to reduce conflict.

Your rollout plan might say:

• Deals earned before 30 June are paid under the old plan
• Deals in the current pipeline are covered by transitional rules
• New deals from 1 July are covered by the new plan
• Any disputed deals will be reviewed against the written criteria

Step 4: Consult And Document The Agreement

Explain why the change is happening and give employees time to review the new terms. If consent is needed, use a signed variation, a new employee commission agreement or a new commission agreement.

If notice is enough, still ask employees to acknowledge that they've received the new plan. An acknowledgement isn't the same as consent, but it helps prove that the rules were communicated clearly.

Good documentation protects your business, but it also helps your team trust the system. Salespeople are more likely to focus on targets when they know exactly how they'll be paid.

Key Takeaways

• You can change a commission plan, but consent may be needed if the existing commission entitlement is contractual.
• Notice may be enough for discretionary or non contractual plans, but changes should usually apply only to future sales.
• Commission already earned under the old rules should generally be paid under those rules.
• Your plan should clearly define the formula, earning trigger, payment date, clawbacks and change process.
• Keep payroll and commission records for 7 years, and treat potential underpayments carefully.
• A tailored commission agreement is one of the best ways to avoid disputes as your sales team grows.

If you'd like help with reviewing your current commission plan, preparing a new sales commission agreement, documenting employee consent or fixing unclear commission rules, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.