Commission-Only Employment Contracts in Australia

Commission-only sales roles can look attractive when cash flow is tight: the business pays when revenue comes in, and the salesperson is rewarded for results. The legal risk is that an employee is not automatically outside minimum wage, award, leave and termination rules just because their pay is linked to sales.

Common mistakes include treating commission as a substitute for award wages, leaving the commission trigger unclear, and trying to claw back commission without a lawful written mechanism. These mistakes can lead to underpayment claims, Fair Work Ombudsman scrutiny, disputes when a sale is cancelled and messy final pay issues when someone leaves.

A lawful sales employment contract, supported by a clear employee commission agreement, should answer a practical question: what does the employee earn, when do they earn it, and what minimum safety net still applies if sales are slow?

Commission-Only Pay: Lawful Starting Points

A commission-only employment contract in Australia is only safe if it fits within the Fair Work Act 2009, any applicable modern award or enterprise agreement, and the National Employment Standards.

For most employers, the phrase commission-only is risky because employees have minimum entitlements that cannot be contracted out of. A sales employment contract can use commissions as part of the remuneration package, but it cannot simply say the employee is paid nothing unless they close deals if that leaves them below their minimum entitlements.

The first step is to identify whether the person is genuinely an employee. If the business controls how, when and where the salesperson works, provides leads or scripts, requires attendance at meetings, supplies tools and integrates them into the team, an employment relationship is likely. Calling the document an independent contractor agreement will not fix the position if the substance looks like employment.

Once you are dealing with an employee, the contract needs to sit on top of the Fair Work safety net. That means checking:

• Employment type: full-time, part-time, casual or fixed term.
• Award coverage: whether a modern award applies to the role, such as a clerical, retail, real estate, travel, banking, professional or industry award.
• Classification: the employee's level under the relevant award, based on duties and responsibility.
• Minimum pay: ordinary hourly rates, casual loading, overtime, penalty rates, allowances and any higher award requirements.
• Leave and NES entitlements: annual leave, personal leave, notice, redundancy where applicable and public holidays.
• Commission rules: how commission is calculated, when it is earned, when it is paid and what happens if a transaction falls over.

Some awards allow particular commission arrangements, but usually only in specific roles and with strict conditions. A real estate sales role, for example, may be subject to award rules that deal specifically with commission-only employment. That does not mean the same approach can be copied into a software sales, retail, recruitment or wholesale role.

A better way to think about the arrangement is this: commission can reward performance, but it does not erase the employee's legal floor. Your contract should state the base entitlements first, then explain how commission is added, offset or reconciled where the law permits.

Minimum Wage, Awards and the Fair Work Act

An employee commission agreement must not leave the employee worse off than the minimum entitlements that apply under the Fair Work Act, the National Employment Standards and any award or enterprise agreement.

Under the Fair Work system, employees are entitled to at least the National Minimum Wage or the applicable award minimum, whichever is relevant. Awards can also set rules about ordinary hours, overtime, penalty rates, breaks, allowances and record keeping. A contract that says commission is the employee's only pay will not override those rules.

For a founder hiring the first sales rep, the hard part is often award coverage. Sales roles can sit in different awards depending on the industry and duties. A person selling SaaS subscriptions to business customers may not be under the same award as a person selling retail products in a store or a person selling real estate. The job title is less important than the actual work performed.

A practical award classification review usually asks:

• What products or services does the business sell?
• Does the employee sell directly to consumers, businesses, distributors or channel partners?
• Do they perform administrative, customer service, marketing or account management duties as well as sales?
• Are they mostly office-based, field-based, store-based or working remotely?
• Do they supervise other staff or manage a territory?
• Is there an enterprise agreement that applies to the business?

If an award applies, the contract should refer to the correct classification and make sure pay practices match that classification. A commission plan cannot be used to hide unpaid overtime or penalty rates. If the employee works outside ordinary hours, travels for work, attends trade shows on weekends or takes calls after hours, award obligations may be triggered.

Casual loading also needs care. A casual sales employee paid commission may still be entitled to a casual loading if an award or the Fair Work Act requires it. Full-time and part-time employees accrue paid leave, so the business needs to budget for leave entitlements even where take-home pay depends heavily on commission.

Can Commissions Be Set Off Against Minimum Wages?

Sometimes a contract can say that commission payments are intended to satisfy particular wage obligations, but only if the drafting is clear and the payments actually cover those obligations. Vague language such as all commissions include all entitlements is not enough.

Set-off clauses are most useful where the employee receives a guaranteed base salary that is higher than the minimum award rate, and the employer wants to credit that higher payment against certain monetary award entitlements. They are much less reliable where the employee has no guaranteed pay and only earns commission if sales close.

A safe contract will avoid broad promises and identify exactly what commission is intended to cover, what it does not cover, and how the business will check compliance each pay period. Payroll should be able to show that the employee received at least what they were owed for the work performed.

Worked Example: SaaS Sales Rep

A startup hires a full-time account executive under an employment contract to sell annual subscriptions. The employee receives no base salary and earns 10% of first-year revenue when the customer pays. In month one, the rep completes onboarding, attends product training, works 38 hours per week and closes no deals.

If the person is an employee, the business still needs to pay the minimum wage or applicable award rate for that work. The absence of closed revenue does not make the work unpaid. A more lawful structure may involve a base salary that satisfies minimum entitlements, plus commission on top once deals meet the agreed trigger.

Another structure may be a recoverable draw, where the employee receives guaranteed regular pay and future commission is reconciled against that draw. This needs careful drafting because deductions, reconciliation and underpayment risk must be managed properly.

Drafting the Employee Commission Agreement and Calculations

A sales commission contract in Australia should define the commission formula so clearly that payroll, the sales manager and the employee all reach the same number from the same facts.

Commission disputes often start because the parties never agreed what counts as a sale. Is commission earned when a lead is qualified, when a contract is signed, when the invoice is issued, when the customer pays, or when any cooling-off, cancellation or implementation period ends? Each option affects cash flow and employee expectations.

The contract should deal with the mechanics in plain terms. For example:

• Eligible sales: which products, services, territories, accounts or customer types earn commission.
• Commission base: whether commission is calculated on gross revenue, net revenue, gross profit, margin, monthly recurring revenue, annual contract value or another metric.
• GST and taxes: whether amounts are calculated exclusive of GST and before or after refunds, discounts and credits.
• Rates and tiers: the percentage or amount payable, including accelerators, thresholds and caps.
• Attribution: who receives commission where multiple employees, founders or channel partners contribute to a sale.
• Timing: the payroll cycle in which commission is paid after it is earned.
• Evidence: which CRM records, signed order forms, invoices or payment records determine entitlement.

Definitions matter most when sales are complex. In a B2B business, one salesperson may find the lead, another may close it, a customer success manager may expand the account and the founder may negotiate final pricing. The contract should state whether commission is payable on new business only, renewals, upsells, cross-sells or retained revenue.

Commission plans should also explain whether the employer can change the plan. Businesses often need flexibility when pricing, products or territories change. However, a unilateral right to alter commissions after work has been done can create serious disputes. A fairer approach is to allow changes on written notice for future commission periods, while preserving commission already earned under the current plan.

Clear Triggers for When Commission Is Earned

The trigger should reflect the commercial reality of your sales cycle. If customers regularly cancel during onboarding, it may be sensible to say commission is earned only once the customer has paid and any initial cancellation period has passed. If deals are simple and payment is immediate, commission on payment may be enough.

Ambiguous triggers create final pay arguments. If the employee resigns after signing a major customer but before the invoice is paid, are they entitled to commission? If the contract does not answer that question, the business may face a claim that the employee substantially performed the work and should be paid.

Common triggers include:

• execution of a customer contract;
• receipt of cleared customer funds;
• completion of implementation or delivery milestones;
• expiry of a refund or cancellation period;
• achievement of monthly or quarterly targets; and
• manager approval of the commission statement.

Manager approval should not be the only trigger. If approval is required, the contract should say approval cannot be withheld unreasonably where the objective commission conditions have been met.

Records, Statements and Payroll Controls

Good records are a legal and commercial protection. The Fair Work Act requires employers to keep employment records and issue payslips that meet legal requirements. Commission arrangements add another layer because the employee needs to understand how variable pay was calculated.

Many businesses use a monthly commission statement showing eligible deals, exclusions, commission rates, adjustments and the payment date. The employee can then raise any query within a set period. This helps catch CRM mistakes early, before they become trust issues or underpayment allegations.

Do not rely on a spreadsheet hidden in the sales manager's drive. The commission calculation should be auditable, especially where commission is a major part of total remuneration.

Targets, Clawbacks and Termination

Targets, clawbacks and termination clauses are enforceable only when they are clear, lawful and consistent with minimum employment entitlements.

Sales targets are useful, but they should not be drafted as a trap. If targets affect commission rates, promotion, performance management or continued employment, the contract or commission plan agreement should state how targets are set and communicated. Targets that change without notice or depend on information the employee cannot verify are a common source of disputes.

For a growing SME, targets often move as the business learns its market. The contract can allow reasonable changes for future periods, such as new territories, product lines or quota adjustments. It should also say who sets targets, when they are issued, and what happens if the employee starts part-way through a quarter, takes approved leave or is absent due to illness or injury.

Performance management still needs to be handled carefully. Missing a sales target does not automatically justify termination. The employer should consider the employee's role, training, leads, territory, market conditions and any award, contract or Fair Work obligations. If the business uses a performance improvement plan, the targets should be measurable and realistic.

Clawbacks and Reversals

A clawback clause should be specific about the events that reverse or adjust commission, and should not operate as an unlawful deduction from wages.

Clawbacks are common where customers cancel, fail to pay, receive a refund, downgrade, charge back payment or are found to have been sold a product outside approved pricing rules. The legal issue is how the clawback is applied.

Under the Fair Work Act, deductions from an employee's pay are only permitted in limited circumstances, including where they are authorised in writing and are principally for the employee's benefit, authorised by an award or enterprise agreement, or authorised by law. Even where authorised, a deduction can be unlawful if it is unreasonable. This means a clause that lets the business take money out of final wages for any lost sale may be vulnerable.

A safer structure is often to define commission as not earned until the relevant conditions are satisfied, or to adjust future unearned commission statements rather than deducting from minimum wages. If the business wants to recover an overpayment, the written authorisation and process should be handled carefully.

Clawback clauses should cover:

• the exact events that trigger reversal or adjustment;
• whether the whole commission or only a proportional amount is affected;
• the time period during which clawbacks can occur;
• how the employee will be notified;
• whether the adjustment applies to future commission rather than base wages; and
• what happens if employment ends before the adjustment is processed.

A clawback should not punish an employee for matters outside their control unless the contract clearly deals with that risk and the result is lawful. For example, a customer insolvency risk may be treated differently from a refund caused by the salesperson promising features the business never offered.

Termination and Final Commission Payments

Termination clauses should state what happens to commission on deals in the pipeline, deals already earned and deals that complete after the employee leaves.

Employees are entitled to notice of termination or payment in lieu under the National Employment Standards, unless an exception applies. Awards, contracts or enterprise agreements can add further rules. Final pay can include wages, accrued leave and any commission that has been earned under the contract. Some awards also set timing requirements for final pay.

The employer should avoid broad wording that says no commission is payable after termination in all circumstances. If the employee already earned commission before termination, the business may still need to pay it. A better clause separates:

• earned commission: commission where all conditions were met before termination;
• pending commission: deals signed or substantially progressed but not yet meeting the earning trigger;
• post-employment sales: revenue that arises after the employee leaves; and
• clawbacks: later events that affect commission previously paid or calculated.

The contract should also protect confidential information, customer relationships and business goodwill. Sales employees often have access to pricing, pipeline data, customer lists, proposals and discounting strategies. Confidentiality clauses are usually essential. Restraint clauses can be useful, but they must be carefully drafted to have a reasonable chance of being enforceable.

When a salesperson leaves, a clean handover process reduces risk. Disable systems access at the right time, secure devices, export CRM notes, confirm outstanding commission treatment in writing and remind the employee of confidentiality and post-employment obligations.

FAQs

Can I Have a Commission-Only Employee in Australia?

Sometimes, but only where the arrangement complies with the Fair Work Act, the National Employment Standards and any applicable award or enterprise agreement. In many roles, a true no-sale, no-pay employee model will breach minimum wage or award obligations.

What Should an Employee Commission Agreement Include?

It should include employment type, award classification, base pay or minimum entitlements, the commission formula, eligible sales, earning triggers, payment timing, targets, clawbacks, record keeping and termination rules. It should also cover confidentiality and customer information.

Can I Claw Back Commission if the Customer Cancels?

Yes, a clawback may be possible if the contract clearly allows it and the method is lawful. The safest approach is to define commission as earned only after payment or after a cancellation period, rather than deducting from wages that are already owed.

Do I Need to Pay Superannuation on Commission?

Employee remuneration structures can have superannuation consequences, including where commissions form part of ordinary earnings. Employers should make sure payroll settings are checked alongside the employment contract and commission plan.

What Happens to Commission When a Sales Employee Resigns?

The answer depends on when commission is earned under the contract. If the employee met all conditions before resignation, it may need to be paid in final pay. Pending deals and post-employment revenue should be addressed clearly in the contract.

Key Takeaways

• Commission can be part of a sales employment contract, but it does not remove minimum wage, award, NES, leave, notice or record keeping obligations.
• A commission-only employment contract in Australia is high risk unless a specific award or lawful structure supports it.
• The contract should define eligible sales, commission rates, earning triggers, payment dates, GST treatment, refunds, cancellations and shared deals.
• Clawbacks need careful drafting because unlawful deductions from employee wages can create Fair Work issues.
• Termination clauses should separate earned commission, pending deals, future revenue and any post-employment restraints or confidentiality obligations.

If you are hiring sales staff and want the pay structure documented properly, Sprintlaw can help with your sales employment contract, employee commission agreement, clawback wording and termination clauses. Contact us on 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.