Updated: November 11, 2024
Commission definition and meaning
A commission is money an employee earns for selling goods, services, or subscriptions and is usually tied to a quota. Employees can earn commissions in addition to their base salary, while some receive commissions as their basis of pay.
More about commissions and their purpose
Many sales jobs, and sometimes even marketing roles, offer commission-based compensation to motivate employees.
Paying commission can be either part of the employee’s regular pay or a separate form of compensation that is paid at another point during a pay period. It is usually calculated based on a percentage of total sales, which means the more products or services an employee can sell, the higher the dollar amount they receive in commissions. Software, commercial and residential real estate, recruiting, and pharmaceuticals are just some of the industries that use commissions as a way to motivate their teams.
Moreover, employers should use caution and not assume that all commissioned employees are exempt from overtime. Several states also require particular items to be listed on the pay stubs of employees whose basis of pay is commission.
It’s important to review the statutes put forth in the FLSA and take advantage of any further clarification that the US Department of Labor provides, as well as any possible regulations put forward by the state where your business operates. Though it requires a few extra steps, the extra effort is well worth the peace of mind that comes from knowing you won’t end up on the wrong side of labor law.
“After closing the month with two unexpected deals, my commission check is almost double the amount of what it normally would be.”
Articles and resources related to: Commission