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If you’ve ever worked in real estate or a car dealership, you might be very familiar with sales commission. This means that employees are paid based on how well they perform in terms of sales. This can work in one of two ways:
- Commission is paid in addition to their current wage
- Commission is paid by itself (makes up their whole wage)
As an employer, if you follow the first method, commission acts as an incentive for employees to work for a ‘bonus payment’. Generally speaking, this should be paid in addition to their wage and NES entitlements.
The second method, however, is a bit more tricky. Here’s what you need to know.
When Can I Pay My Employees Commission Only?
You cannot pay your employees commission only unless they’re under a modern award or registered agreement that allows you to do so. For example, under the Real Estate Award, employees can be paid commission only. This means they can be paid based solely on their sales performance, and the minimum wage does not apply.
This is usually the case with industries like real estate because the company’s income is closely connected to sales and employee performance. Essentially, commission works as an incentive to make more sales and generate more income.
For example, let’s say that Jack works in Real Estate and is currently under the Real Estate Award. He is not entitled to minimum wage, however he and his employer have a written agreement that he will be paid commission only. This means he gets paid according to how many sales he can make, and this is all set out in their contract.
If Jack was working at a retail clothing store, however, this would not be the case. Jack would not be covered by the Real Estate Award and the company’s overall income is not as closely connected to his individual sales performance. As such, he would be entitled to minimum wage and commission-only payments would not be permitted.
Are There Certain Requirements?
If you want to pay your employees commission only, you need to ensure that:
- Their modern award allows them to be paid in this way
- Your employment contract is consistent with commission-only payment
- There is a written agreement that sets out how the commission will be calculated and paid
You also need to ensure that your employee has a copy of this written agreement, so everything is clear from the outset.
What Kind Of Written Agreement Do I Need?
The best way to set out a commission-based payment is to have an Employee Commission Agreement. It basically outlines the terms of payment and how it will be calculated, and is often given early in the employment relationship.
What About Contractors?
Contractors can also be paid commission only, and this needs to be set out in writing in the form of a Commission Agreement. However, it’s important to be aware of sham contracting.
What Is Sham Contracting?
If an employer tries to make an employment relationship look like a contractor relationship to avoid certain obligations (such as superannuation and minimum wage), this is a sham contracting arrangement. To determine whether a sham contracting arrangement exists, a number of questions need to be asked. A recent case with Uber Eats workers dealt with this issue in depth—you can read about it here.
Essentially, it’s important to know the difference between employees and contractors, so you can identify a sham contracting arrangement and ensure you’re not being exploited. This way, you can also determine whether you’re entitled to more than commission-only payments.
As an employer, you need to ensure that you’ve established the correct legal relationships with your employees and contractors. This means fulfilling all your obligations to them and setting it all out in writing.
Need Help?
The legal side of employment obligations can get a bit tricky. If you’re not sure whether your award permits commission-only payments or you’ve got some general questions about the employment relationship, have a quick chat with our team of lawyers!
You can reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation free chat.
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