Commission-Based Contracts: Australian Business Owner’s Guide

Thinking about paying a salesperson, agent or partner on commission? Done well, commission-based contracts can boost performance and align incentives across sales, real estate, recruitment, creative and professional services in Australia.

But the flip side is just as real. Vague rules, missing clauses or the wrong engagement type (employee vs contractor) can lead to disputes, underpayment claims or compliance issues.

In this guide, we’ll unpack how commission arrangements work in Australia, when you might use them, the key legal requirements, and the documents you’ll need to protect your business. We’ll keep things practical and in plain English so you can set up a compliant, motivating plan and avoid the common traps.

What Is A Commission-Based Contract?

A commission-based contract is a written agreement that sets out how someone is paid based on results, such as a percentage of each sale, a fixed amount per deal, or a bonus tied to milestones.

You can use commissions with employees, independent contractors or third-party referrers. Commission can sit on top of a base salary or retainer, or it can be the primary way a person earns (in limited circumstances and subject to strict rules).

In practice, your contract should clearly answer:

• What actions or outcomes earn commission (signed contract, paid invoice, revenue collected, profit achieved)?
• How commission is calculated (percentage of revenue, percentage of gross profit, flat fee per sale, tiered thresholds).
• When commission is payable (on invoice, on customer payment, monthly, quarterly, after probation).
• Whether there’s a base salary or retainer, or if it’s “commission-only” (and in which circumstances that’s lawful).
• What happens when a customer cancels, requests a refund, returns goods or doesn’t pay.
• How GST, superannuation and leave entitlements apply, depending on whether the person is an employee or contractor.
• Confidentiality, non-solicitation and IP ownership obligations.
• What happens to pipeline deals if the relationship ends.
• Governing law and dispute resolution.

Because commission is “results-driven”, misunderstandings can escalate quickly. Clear definitions, examples and a transparent payment timetable will minimise disputes and build trust.

How Does Commission Pay Work In Australia?

Commission arrangements must sit within Australia’s employment and contractor laws. Here are the core concepts to get right from day one.

Employees vs Contractors

First, determine whether the individual is an employee or an independent contractor. This affects minimum pay, leave, tax, super and who bears business risks. If you’re engaging a contractor, the contract should reflect a genuine business-to-business relationship (including control, tools, ability to subcontract, and being paid for outcomes, not hours). If in doubt, seek tailored employee vs contractor advice before you draft the agreement.

Award Coverage And Minimum Entitlements

Many employees are covered by a modern award that sets minimum terms (classification, minimum rates, allowances and how incentive payments can be structured). Ensure your commission plan sits on top of at least the applicable minimums. If you need help benchmarking the role, consider an award compliance review before launch.

Commission-Only Roles

Commission-only employment exists in some industries (for example, certain real estate roles), but availability is limited and criteria are strict. In many sectors, employees must still receive at least a base rate. Always check the relevant modern award or enterprise agreement before moving to commission-only. Where commission-only is permitted, rules typically address qualification for commission-only status, minimum safety nets and how payments are reconciled over time.

Superannuation And OTE

Generally, commission for employees forms part of Ordinary Time Earnings (OTE) for superannuation purposes. Understanding Ordinary Time Earnings helps you calculate super correctly on commissions, bonuses and allowances.

PAYG Withholding And Tax

For employees, PAYG withholding applies to both base pay and commission.

For contractors, you generally do not withhold PAYG unless a specific rule applies (for example, the contractor has entered a voluntary withholding agreement with you, they are engaged through certain labour-hire arrangements, or they don’t quote an ABN, which triggers “no-ABN” withholding). Get tax and payroll settings right up front and, where needed, speak with your accountant. This guide is general information only and is not tax advice.

Australian Consumer Law (ACL) And Sales Conduct

Commission pressures can lead to overstated claims. Any statements by your sales team (employees or agents) must not be false, misleading or deceptive under the Australian Consumer Law, including section 18. Build compliance into training and your commission criteria.

Step-By-Step: Setting Up A Commission Arrangement

Use this practical process to design and document a robust, compliant commission plan.

1) Define The Role And Relationship

• Is this an employee (on payroll) or a contractor (with an ABN) engaged B2B?
• What are the outputs you want to incentivise (new sales, renewals, paid invoices, gross margin)?
• Will there be a base salary/retainer plus commission, or a commission-only model (only where lawful)?

2) Check Awards, Policies And Guardrails

• Confirm modern award coverage and minimum classification/pay.
• Decide whether commissions stack on top of a base, or are used to meet minimums (where permissible).
• Set boundaries around discounts, quoting and approvals to avoid margin erosion.

3) Choose A Commission Structure You Can Administer

• Percentage of revenue: simple to track, but sensitive to discounting.
• Percentage of gross profit: aligns incentives to margin, requires more data.
• Flat fee per deal: easy to administer, may not scale with deal size.
• Tiered or accelerator plans: reward over-target performance, but must be clearly defined.

Where possible, include worked examples in the contract so there’s no ambiguity.

4) Set Triggers, Timing And Clawbacks

• Trigger to “earn” commission: for example, when the customer pays in full, or after expiry of any refund period.
• Payment timetable: monthly/quarterly statements and payout dates.
• Cancellations, returns and bad debt: whether commission is reduced or clawed back if the customer doesn’t ultimately pay.
• In-flight deals on exit: how you handle commission for deals signed before termination but paid after.

5) Lock In The Right Contract

• Employees: integrate the commission plan into an Employment Contract with a clear incentive schedule.
• Contractors: set out scope, deliverables and commission in a Contractors Agreement or a service agreement, ensuring the arrangement reflects an independent business relationship.
• Sales-specific terms: where appropriate, pair the main agreement with an Employee Commission Agreement or incentive schedule you can update from time to time (with proper notice and subject to applicable laws).

6) Protect Your Customers And IP

• Confidentiality: include an NDA at engagement, and confidentiality obligations in the main contract (Non-Disclosure Agreement).
• Non-solicitation: prevent departing staff or agents from taking your clients or team.
• IP ownership: ensure any materials, pitch decks or content created are owned by your business.
• Brand protection: consider registering your name and logo as a trade mark early via trade mark registration.

7) Set Up Payroll, Super And Records

• Configure payroll to calculate commission, super and PAYG correctly (for employees).
• Create a consistent process for commission statements, approvals and dispute resolution.
• Maintain accurate sales and payment records for auditing and transparency.

8) Train, Communicate And Review

• Walk through the plan, give examples and confirm understanding before go-live.
• Review performance and plan design regularly to ensure it remains motivating, fair and compliant.

What Legal Documents Do You Need?

The right documents keep everyone on the same page and reduce risk. Not every business needs all of these, but most commission setups will use several.

• Employment Contract: Sets out role, base pay, leave, termination and how the commission plan integrates with employment terms. For employees, start with a solid Employment Contract and attach the incentive schedule.
• Contractors Agreement / Service Agreement: For B2B engagements, covers scope, independence, payment, commission structure, confidentiality and IP. A well-drafted Contractors Agreement helps avoid sham contracting risks.
• Commission Plan or Incentive Schedule: A clear schedule detailing commission calculations, triggers, timing, caps, clawbacks and worked examples.
• Non-Disclosure Agreement (NDA): Protects confidential information when discussing pricing, client lists or strategy with agents or candidates. Use an NDA at the outset.
• Privacy Policy: If customer data is collected by your team or agents, publish and follow a compliant Privacy Policy and set clear data-handling rules.
• Sales And Marketing Guidelines: Internal rules around claims, discounts and approvals to ensure compliance with the Australian Consumer Law, including misleading or deceptive conduct prohibitions.
• Workplace Policies (employees): Performance management, conduct and expenses policies that support your incentive framework and set expectations.

If your sales model spans partners, affiliates or referrers, you may also need tailored referral or reseller agreements. Build from a strong base and customise for your market and award.

Common Mistakes (And How To Avoid Them)

Even well-intentioned plans can miss the mark. Here are frequent pitfalls and practical fixes.

• Using a generic overseas template: Australian awards, super and GST rules differ. Start with local documents and align with your award and industry norms.
• Unclear commission definitions: Vague phrases like “on closing” lead to disputes. Define “closing”, “earned”, “paid”, “refunds”, and the timetable. Include examples.
• Ignoring cancellations and bad debt: State whether and how commission is reversed or adjusted if the customer cancels or never pays.
• Mixing up employee and contractor obligations: If someone is effectively an employee, but treated like a contractor, you risk underpayment and penalties. Get classification advice and use the correct contract.
• Incorrect super on commission: For employees, most commission counts towards OTE. Use the ATO view and your payroll settings to apply super correctly on commission and check your understanding of Ordinary Time Earnings.
• Commission-only without checking awards: Many roles cannot lawfully be commission-only. Confirm eligibility and minimums under the modern award or agreement before proceeding.
• No controls on sales conduct: Pressure to sell cannot justify misleading claims. Embed ACL training and guidelines; your business is responsible for your reps and agents’ statements.
• Weak confidentiality or IP clauses: Without strong protections, client lists and playbooks can leave with the person. Use NDAs, non-solicitation and IP ownership clauses from the outset.
• Set-and-forget plans: Markets change. Review the plan regularly for compliance, fairness and competitiveness; communicate updates clearly and lawfully.

Key Takeaways

• Commission-based contracts can be a powerful motivator, but they must align with Australian employment law, awards and the Australian Consumer Law.
• Choose the right engagement type first (employee or contractor), then document the commission structure, triggers, timing and clawbacks in clear, plain language.
• Commission-only employment is limited to specific circumstances and industries; always check the relevant modern award or agreement before using it.
• For employees, commission typically forms part of OTE for superannuation; set up payroll to calculate super and PAYG correctly and confirm tax handling with your accountant.
• Protect your customers, brand and pipeline with NDAs, non-solicitation, IP ownership clauses and a compliant Privacy Policy if personal data is collected.
• Use the right documents for the job: an Employment Contract or Contractors Agreement, a clear commission schedule, and sales conduct guidelines grounded in the ACL.

If you’d like a consultation on setting up or reviewing a commission-based contract for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.