Sales Commission Agreements For Startup Sales Reps

Hiring your first sales reps can be exciting. You're building a team that can bring in new customers, test new markets and turn your startup's growth plans into real revenue.

But commission can get messy very quickly if the rules aren't clear from the start. A vague promise like "10% commission on sales" might sound simple, but it leaves a lot unanswered: 10% of what, paid when, and what happens if the customer never pays?

A good sales commission agreement helps you set expectations before you make offers, change targets or launch a new incentive plan. It also helps your team focus on selling, rather than arguing about who gets paid for what.

Do You Need A Written Sales Commission Agreement In Australia?

Yes, you should have a written agreement if you're paying sales commission in Australia, especially if your sales team is employed by your business.

There isn't one single document called a "sales commission agreement" that every startup must use. In practice, your commission terms might sit in an employee commission agreement, a commission plan or:

• an employment contract
• a separate commission plan agreement or schedule
• a sales incentive policy
• a letter confirming changes to targets, territories or commission rates

The best setup depends on how much flexibility you need. For example, you might want the employment contract to say the employee is eligible for commission under a plan, and then keep the detailed targets in a separate commission plan that can be updated properly over time.

What matters is that the documents work together and don't contradict each other. If your employment contract says commission is "discretionary", but your commission plan says commission is "guaranteed once a deal is signed", you're setting yourself up for a dispute.

A written agreement should also make clear whether the person is an employee or an independent contractor. Most sales reps in startups are employees, particularly where you control their hours, sales process, reporting, tools and customer lists. Calling someone a contractor doesn't automatically make them one under Australian law, and getting this wrong can lead to underpayment, superannuation and leave issues.

Can Commission Replace Minimum Wages Or Award Entitlements?

No, commission generally can't replace your obligation to pay minimum wages, National Employment Standards entitlements and any applicable modern award entitlements.

If your sales rep is an employee, the Fair Work Act 2009 applies. The National Employment Standards cover minimum entitlements such as annual leave, personal leave, public holidays, notice of termination and redundancy pay where applicable.

You also need to check whether a modern award applies to the role. Some sales roles may be award-free, but many aren't. For example, a sales employee could fall under an award depending on your industry, their duties and seniority. Awards can set minimum rates, penalty rates, overtime rules, allowances and record-keeping requirements.

Commission can sit on top of these entitlements, or in some cases be structured as part of a higher overall salary package. But you still need to make sure the employee is better off overall than they would be under any applicable award. If your commission plan is unpredictable, you shouldn't rely on it to cover minimum entitlements unless you've had the structure properly checked.

You also need to be careful with underpayments. From 1 January 2025, intentional underpayment of wages and certain entitlements can attract criminal penalties under changes to the Fair Work Act. That's another reason to make your commission rules clear, keep accurate records and pay on time.

What About Superannuation?

Superannuation can apply to commission payments where they form part of ordinary time earnings. The super guarantee rate is 12% from 1 July 2025.

Super rules can be technical, so it's worth getting payroll or accounting support on the calculations. From a legal drafting perspective, your commission agreement should state whether commission amounts are inclusive or exclusive of super where that wording is relevant to your package. You don't want a dispute later about whether a $20,000 commission opportunity meant $20,000 plus super or $20,000 including super.

What Should A Sales Commission Clause Include?

A sales commission clause should clearly say how commission is earned, calculated, approved and paid.

For a startup, the clause needs to be specific enough to avoid disputes, but flexible enough to let your sales strategy change as the business grows. A good clause usually covers:

• Eligibility: who can earn commission and whether they need to remain employed at the payment date
• Commission rate: the percentage, flat fee or tiered rate that applies
• Commission base: whether commission is calculated on gross revenue, net revenue, profit margin, recurring revenue, first year contract value or another metric
• Targets and thresholds: whether the rep must meet a quota before commission is payable
• Timing: when commission is earned and when it's paid
• Approvals: who decides whether a deal qualifies
• Exclusions: discounts, refunds, bad debts, internal deals, renewals or existing customers
• Clawbacks: when you can reverse or recover commission
• Termination: what happens to unpaid commission if employment ends
• Changes: how you can vary targets, territories or rates

Try to avoid broad wording like "commission is payable on all sales". That phrase can cause problems if you later realise you meant paid invoices only, or new customers only, or deals personally sourced by that rep.

Say you run a SaaS startup in Melbourne. Your sales rep signs a customer on a $60,000 annual contract, but the customer negotiates a 50% discount for the first 3 months and only pays monthly. If your plan doesn't define the commission base, your rep might expect commission on $60,000 upfront. You might have intended commission on cash received after discounts. Both views can feel reasonable if the document is vague.

When Is Commission Actually Earned And Paid?

Commission should be earned and paid at the point your agreement says it is, provided that timing doesn't breach employment law or any applicable award.

This is one of the biggest areas for disputes. A rep might think they've earned commission when the customer signs. You might think commission is only earned when the customer pays the invoice, passes onboarding or stays for a minimum period.

Your agreement should separate two ideas:

• When commission is earned: the event that creates the entitlement
• When commission is paid: the payroll date or payment cycle when the amount is actually paid

Common options include commission being earned when:

• the customer signs a binding contract
• the customer pays the first invoice
• the cooling-off or cancellation period ends, if one applies
• the customer has remained active for a set period
• the sale is approved by management and recorded in your CRM

For payment timing, many businesses pay commission monthly or quarterly, after reconciliations are complete. If you do this, say it clearly. For example, you might pay eligible commission in the next pay run after the end of the month in which the customer payment is received.

You also need to meet payroll obligations. Under the Fair Work Regulations, employee pay slips generally need to be issued within 1 working day of payment. Employee records, including pay records, generally need to be kept for 7 years.

Commission Payment Terms For Employees

Your commission payment terms should be practical enough for your payroll team to administer. They should cover:

• the commission period, such as monthly, quarterly or annual
• the data source used to calculate commission, such as your CRM or finance system
• how disputes about calculations are raised and resolved internally
• whether commission is paid through payroll and subject to normal withholdings
• whether the amount is shown separately on the pay slip

If your plan depends on manual judgement every month, it's more likely to create tension. Clear formulas and clean records make life easier for everyone.

How Should You Deal With Targets, Thresholds And Territories?

You should deal with targets, thresholds and territories in writing, including how they can be changed and when changes take effect.

Startups often change direction quickly. You might shift from founder-led sales to a sales team, change your ideal customer profile, move from monthly plans to annual contracts, or reassign accounts when someone new joins.

That's normal. The risk is changing commission rules informally after your team has already done the work.

Your agreement should explain:

• whether targets are monthly, quarterly or annual
• whether commission is paid from the first dollar or only after a threshold is met
• whether higher rates apply after a target is exceeded
• how territories, accounts or lead sources are allocated
• what happens if a target is changed during a commission period
• how much notice you'll give before changes apply

If you want the ability to vary targets, say so carefully. A variation clause shouldn't give you unlimited power to wipe out commission after a rep has already earned it. That can damage trust and may create legal risk.

A practical approach is to reserve the right to change targets for future commission periods, while protecting commission that has already been earned under the current plan. If you need to make mid-period changes, document the reason, confirm the date the change applies from and get written acknowledgement.

Example: Tiered Commission

Mike runs a B2B software startup in Sydney. His sales reps earn 5% commission once they reach $40,000 in new monthly recurring revenue for the quarter, then 8% on revenue above $80,000.

That sounds clear, but Mike's plan also needs to define "new monthly recurring revenue". Does it include upsells to existing customers? Does it include implementation fees? What about a customer who signs in March but starts paying in April?

These details might feel small, but they're the details that prevent commission disputes later.

Can You Use Clawbacks If A Deal Falls Over?

Yes, you can use clawbacks in some commission plans, but they need to be carefully drafted and lawful.

A clawback is where you reverse or recover commission that was paid earlier because something later changes. For example, the customer cancels, doesn't pay, receives a refund or the sale turns out to be invalid.

Clawbacks are common in sales environments, but they can be risky if they're too broad. You need to be especially careful where the sales rep is an employee, because deductions from wages are restricted under the Fair Work Act.

Generally, deductions from an employee's pay need to be authorised in writing and principally for the employee's benefit, or otherwise allowed by law, an award, enterprise agreement or court order. A clause that lets you deduct any amount you like from future wages may not be enforceable.

A safer way to structure clawbacks is to define when commission is actually earned. For example, instead of paying commission at signature and trying to claw it back later, you might say commission is only earned once the customer has paid the first invoice and remained active for 60 days.

If you do need a clawback mechanism, the clause should cover:

• the exact events that trigger a clawback
• the period during which a clawback can apply
• how the amount is calculated
• whether the amount is offset against future commission rather than deducted from base wages
• how you'll notify the employee
• what happens if employment ends before the clawback is processed

Be careful with wording that penalises a rep for things outside their control. If the product fails, onboarding is delayed or your business changes the customer's contract after the sale, it may not be fair or commercially sensible to claw back commission from the sales rep.

What Happens To Pipeline Deals When Employment Ends?

It depends on your agreement, which is why termination and pipeline clauses are so important.

Pipeline deals are deals that are in progress when a sales rep resigns, is dismissed or is made redundant. These can cause tension because the rep may have done significant work, but the deal hasn't closed yet.

Your agreement should say what happens to:

• commission already earned but not yet paid
• signed contracts where the customer hasn't paid yet
• late-stage opportunities that close after the employee leaves
• renewals or upsells linked to accounts the employee managed
• deals split between multiple sales reps

You can't simply avoid paying commission that has already been earned under the agreement because someone has left. If the entitlement has crystallised, you need to deal with it like any other employment payment.

For pipeline deals that haven't reached the earning event, you have more room to set rules. For example, your commission agreement might say that no commission is payable on opportunities that close after employment ends, unless the business agrees in writing because the employee had completed all material sales activities before their last day.

You also need to consider minimum notice under the National Employment Standards. Depending on length of service and age, the minimum notice period is generally 1 to 5 weeks. Awards, enterprise agreements or contracts can add extra requirements.

Resignation, Dismissal And Redundancy

Your termination clause should work across different exit scenarios. You may want different rules for:

• resignation
• termination with notice
• summary dismissal for serious misconduct
• redundancy
• gardening leave

For example, if a rep is on gardening leave, can they continue to earn commission on deals they worked on before they were directed not to contact customers? Your plan should answer that rather than leaving it to argument at the end of employment.

Can You Change A Commission Plan After It's Been Offered?

Yes, but you need to manage changes carefully, especially if the commission plan forms part of the employment contract.

If commission is a contractual entitlement, changing it without consent may amount to a breach of contract. Even if your plan says you can vary it, you should use that power reasonably and only for future entitlements.

Before changing a plan, check:

• whether the employment contract allows changes to the commission plan
• whether any award or enterprise agreement applies
• whether the change affects base pay, hours or other employment terms
• whether commission has already been earned under the current plan
• what notice you promised to give
• whether the change could be seen as adverse action because of a workplace right

It's usually best to confirm changes in writing and ask the employee to acknowledge them. If the change is significant, such as reducing commission rates or raising thresholds, you may need express agreement.

Also think about morale and retention. A legally clever commission change that feels unfair can still cost you your best salespeople. Clear communication goes a long way.

Common Mistakes To Avoid

The most common mistakes come from assuming everyone has the same understanding of a "sale". They often don't.

Watch out for these issues:

• Using vague formulas: Spell out whether commission is based on gross revenue, net revenue, profit, contract value or cash received.
• Forgetting refunds and bad debts: Say what happens if a customer doesn't pay, cancels or receives a credit.
• Ignoring employment law: Commission doesn't remove your obligations under the Fair Work Act, the National Employment Standards or any applicable award.
• Changing targets verbally: Put changes in writing, with the date they start.
• Leaving pipeline deals unanswered: Decide upfront what happens to deals that close after employment ends.
• Copying a template from another business: A template may not match your sales cycle, customer contracts, award coverage or payroll setup.
• Not matching the customer contract: If your customer contract or terms of sale allow easy cancellation but your commission plan pays at signature, you may carry more risk than you intended.

Your commission agreement doesn't need to be full of complicated legal language. It just needs to reflect how your business actually sells, collects money and manages accounts.

Key Takeaways

• A written sales commission agreement helps you avoid disputes about targets, payment timing, clawbacks and pipeline deals.
• Commission doesn't replace minimum wages, the National Employment Standards or any applicable award entitlements.
• Your agreement should define when commission is earned, not just when it's paid.
• Clawbacks need careful drafting, especially because employee wage deductions are restricted under the Fair Work Act.
• Termination clauses should clearly cover unpaid commission, pipeline deals, renewals and gardening leave.
• If you want to change commission rates or targets, document the change and make sure it only applies in a lawful way.

If you'd like help with your sales commission agreements, employment contracts, commission plan changes or clauses for clawbacks and pipeline deals, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.