Can I Pay My Employees Commission Only?

Commission can be a powerful way to motivate sales teams. It rewards performance, helps align incentives, and can feel fair for roles where revenue is directly tied to effort.

But in Australia, “commission only” is a loaded phrase. There are strict rules about minimum pay, when awards apply, superannuation, leave, and other entitlements. If you don’t structure it correctly, a commission-only arrangement can lead to underpayment claims, penalties and reputational damage.

In this guide, we’ll unpack what “commission only” really means under Australian employment law, when it’s lawful, the risks to watch, and how to design a compliant commission structure that still drives results.

What Does “Commission Only” Mean In Australia?

Commission is a payment calculated by reference to results - for example, a percentage of sales you bring in. “Commission only” means an employee’s pay is purely commission, with no separate base salary or hourly wage.

In practice, pure commission is rare for employees because Australia’s workplace system sets minimum pay floors. Even if you pay generous commission, you generally need to ensure each employee still receives at least their minimum entitlements over the relevant pay period.

Let’s separate three common scenarios:

• Base + Commission: A base wage (or salary) plus variable commission. This is the most common and is usually the easiest to make compliant.
• Commission With a “Top-Up” or “Draw”: Commission is primary, but you guarantee at least the minimum wage (or award minimum) each pay period by topping up if commission falls short. A “draw” is an advance you later reconcile against future commission.
• Commission Only: Pure commission, with no guaranteed base or top-up. This is only lawful in limited circumstances (for example, where a specific modern award permits it under strict criteria) and even then, you must tick a lot of boxes.

Is Commission-Only Employment Legal?

It can be - but only in certain situations and with careful structuring.

1) Awards and Enterprise Agreements Still Apply

Many sales roles are covered by a modern award or enterprise agreement. If an award applies, it usually sets minimum rates, commission rules, loadings and overtime. You cannot pay less overall than the award entitlements.

Some awards allow commission-only classifications (for example, in real estate). Where they do, there are strict entry requirements, record-keeping and reconciliation obligations. Always check Modern Awards before you roll out a commission-only scheme.

2) “Award-Free” Doesn’t Mean Obligation-Free

Even if a role is truly “award-free,” the National Employment Standards (NES) still apply, and the employee must be paid at least the National Minimum Wage (plus casual loading for casuals). Pure commission is unlikely to satisfy this unless you guarantee minimum earnings or top up shortfalls each pay cycle.

3) High-Income Employees

Providing a written high-income guarantee above the High Income Threshold may disapply some award provisions - but it doesn’t remove NES obligations or the need to ensure pay arrangements are lawful overall. You still need clarity around hours, leave, and commission calculations, and you still must avoid unfair terms.

4) Employees vs Contractors

Sometimes businesses consider engaging commission-based salespeople as contractors to avoid award obligations. Be careful. The law looks at the true nature of the relationship (control, integration, risk, tools, ability to delegate, etc.), not just the label. If the person is really an employee, you’ll still owe employee entitlements - even if your contract calls them a contractor.

Bottom line: In most cases, paying “commission only” to employees is high risk unless an applicable award expressly allows it and you meet the criteria. A safer, more compliant approach is base + commission or commission with a guaranteed top-up.

How Do I Structure Commission So It’s Compliant?

The goal is to motivate performance without breaching minimum entitlements. Here’s a practical roadmap.

Set A Lawful Pay Floor

For award-covered roles, calculate the minimum hourly/base rates, loadings and penalties that would apply. For award-free roles, use the National Minimum Wage (and any applicable casual loading) as your baseline. Build your commission model around that floor - not instead of it.

Choose The Right Pay Mechanism

• Base + Commission: Pay the lawful base each pay period. Add commission according to clear rules and timing (e.g. paid the month after sale settlement). This is usually the cleanest model.
• Top-Up / Draws: If you want commission to be the main remuneration, include a guaranteed minimum (or a recoverable draw) and reconcile regularly to ensure the employee never ends up below the lawful minimum in any pay period.
• Annualised Salaries and Set-Off: For salaried employees, you can consider a well-drafted set-off clause that allows above-minimum payments to absorb certain award entitlements. This is technical and must be drafted carefully - see set-off clauses to understand the approach and limits.

Define Commission Rules Clearly

Your commission plan should answer, in plain English:

• When is a sale “won” and when is commission earned (e.g. contract signed vs settlement vs payment received)?
• What happens if a customer cancels, returns or doesn’t pay?
• How are team sales, split deals or territories handled?
• Are there accelerators, caps or clawbacks - and when do they apply?
• What if someone is on leave, on probation or has recently resigned?

These rules live best in a written Employee Commission Agreement that sits alongside the employee’s contract, so everyone is on the same page.

Avoid Unlawful Deductions

Be very careful with clawbacks, recoverable draws or deductions for returns. Deductions must be lawful and properly authorised. The wrong approach can amount to unlawful withholding. If you need to recover overpayments or adjust commission after the fact, get advice and review your processes - our guide on withholding pay from employees is a useful overview.

Document Everything

Put the commission plan and employment terms in writing. Use a robust Employment Contract for permanent staff (or a casual agreement for casuals), and attach or cross-reference the commission plan. If you pay well above minimums as a risk management strategy, note how that interacts with award obligations - and consider whether above-award wages or an annualised salary arrangement makes sense.

What Should Your Commission Agreement Include?

Well-drafted terms reduce disputes and protect both sides. At minimum, consider:

• Eligibility & Employment Status: Who qualifies (role, probation status), and what happens if the role or status changes.
• Definitions: Clear definitions of “sale,” “revenue,” “gross margin,” “settlement,” etc. so calculations are not ambiguous.
• Accrual & Payment Triggers: When commission is “earned,” and when it’s paid. Align this with customer payment/settlement to reduce bad-debt risk.
• Returns, Cancellations & Bad Debt: Whether commission is reversed or adjusted, and in what circumstances.
• Team Sales & Overlaps: Rules for split deals, territory boundaries, handovers and renewals.
• Accelerators & Caps: Any tiers, multipliers, thresholds or ceilings, and how often you review targets.
• Leave & Absences: Impact of annual leave, personal leave, parental leave and unpaid leave.
• Resignations & Terminations: What happens to pipeline commissions on exit and whether “in-flight” deals still pay out.
• Draws & Top-Ups: If you use a recoverable draw or guaranteed minimum, explain mechanics, reconciliation timing and any limits.
• Record-Keeping & Dispute Resolution: Access to sales reports, how to raise a query, and a simple escalation pathway.

House these terms in a tailored Employee Commission Agreement and ensure it aligns with your employment contracts, policies and any applicable award.

What Employment Laws Still Apply To Commission-Based Staff?

Commission-based employees are still employees. The payment model doesn’t remove the usual obligations. Key areas to watch:

Minimum Pay, Loadings and Penalties

For award-covered roles, your commission model must at least meet the total of the minimum base rates, loadings, penalties and overtime that would have been payable for the hours worked. You should reconcile regularly to ensure no underpayment.

Casuals must receive the applicable casual loading. Public holiday rates and weekend penalties can also apply under awards - factor this into your design and your costings.

Superannuation On Commission

Most sales commissions are “ordinary time earnings,” so super is usually payable on them. This area can be nuanced, so check the specifics of your scheme and role design. For a deeper dive, see Ordinary Time Earnings (OTE) and our guide on superannuation on bonuses.

Leave, Hours And Rostering

Permanent employees accrue annual leave and personal leave based on their ordinary hours, regardless of commission. Rostering rules, maximum weekly hours and rest breaks still apply under the Fair Work system and applicable awards. Your commission plan should never incentivise unsafe hours or non-compliance.

Notice, Redundancy And Termination

Notice of termination, redundancy pay (where applicable), and final pay rules still apply. Your plan should state how pipeline deals and post-termination adjustments are handled and how final pay interacts with pending commissions. Keep this consistent with your Employment Contract and policies.

Record-Keeping & Payslips

You must keep proper records and issue compliant payslips that clearly show commission components. Transparency reduces disputes and helps you demonstrate compliance in any audit or claim.

Discretionary vs Non-Discretionary Payments

If you want commission to be performance-based but not guaranteed, label and structure it correctly. Non-discretionary payments (tied to objective outcomes) are treated differently to discretionary bonuses. Clarity matters for tax, super and employment law - see discretionary vs non-discretionary payments for an overview.

Practical Tips To Reduce Risk

• Do An Award Check: Confirm whether a modern award applies to each role and map your commission rules against it. If you’re unsure, get help - a quick review now is much cheaper than remediation later.
• Prefer Base + Commission (Or Top-Up): It’s simpler to prove compliance and avoid underpayments. Pure commission should only be used where an award permits it and you meet all criteria.
• Write It Down: Use a robust employment agreement plus a written commission plan. Keep both up to date as your business evolves.
• Reconcile Regularly: Run periodic checks to confirm employees received at least their minimum entitlements for the hours worked.
• Be Transparent: Provide sales reports, explain how figures were calculated and set out a simple query process. Transparency builds trust and reduces disputes.
• Train Managers: Make sure managers understand the plan rules, award obligations and what they can and can’t promise to staff.
• Review Annually: Reset targets with market conditions, check legal changes and update plan documents before the new period starts.

What Legal Documents Will I Need?

• Employment Contract: Sets out role, hours, leave, termination and confidentiality. Pair this with a commission plan. For permanent staff, use an appropriate Employment Contract; casuals need a casual agreement.
• Employee Commission Agreement: The document that defines eligibility, calculations, triggers, reversals, clawbacks, caps and dispute processes. A tailored Employee Commission Agreement keeps everything clear.
• Workplace Policies: Policies around performance management, leave, conduct and complaints help your team understand expectations and reduce risk.
• Award Compliance Mapping: Where an award applies, keep a simple internal map of how your plan meets or exceeds award entitlements. If you need help, seek specific award compliance advice.
• Confidentiality & IP Clauses: Protect your customer lists, pricing methods and sales playbooks within your employment contracts.

Common Pitfalls To Avoid

• Assuming “Commission Only” Is Always Allowed: It isn’t. Unless an award explicitly permits it and you meet the criteria, build in a lawful pay floor.
• Vague Rules: Leaving too much to “custom and practice” creates disputes. Define the plan in writing and keep it consistent with your contracts.
• Unlawful Deductions: Don’t claw back pay without a lawful basis and proper authorisation. Review any draw or reversal mechanisms carefully.
• Forgetting Super On Commission: Super often applies to commissions. Bake it into your budgets and payroll processes from day one.
• One-Size-Fits-All Plans: Different roles may need different triggers or targets. Tailor plans to your sales cycle and margins, not somebody else’s.

Key Takeaways

• Commission-only employment is only lawful in limited cases - most employers should use base + commission or a guaranteed top-up to meet minimum entitlements.
• Modern awards, the NES and superannuation rules still apply to commission-based staff, so you must build a lawful pay floor into your model.
• Document the rules clearly in an Employment Contract and a tailored Employee Commission Agreement to reduce disputes and ensure compliance.
• Reconcile regularly to check employees received at least award or minimum rates (including loadings and penalties) for the hours worked.
• Structure commission rules (triggers, reversals, accelerators, caps) in plain English and be transparent with reporting and calculations.
• Get targeted advice on awards, set-off clauses and super on commissions to avoid underpayment risk and payroll surprises.

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