A commission agreement is an essential document for employers and employees who work on commissions. The commission sales agreement lays out the terms of when commissions are paid, how much, and for what.
Using a sales commission agreement template is a practical way to create your own. The commission agreement template takes you step-by-step through the information necessary to complete the agreement accurately.
Having a commission agreement template in place is a wise choice, especially for organizations with large sales teams who work on a commission basis.
What is a Commission Agreement?
A commission agreement often called a sales commission agreement, is legally binding. It spells out what types of sales and customers are eligible for commissions.
It’s an effective tool that ensures sales staff and employers understand the commission terms. It can be used with all types of employees, whether salaried, paid by the hour, or earned income solely on commissions.
The terms may vary based on the commission, business, and employee type. However, if applicable, the most common elements to include in the agreement are the commission percentages or salary. It may also include terms about confidentiality or non-disclosure related to any deals covered by the commission agreement.
When to Use a Commission Agreement
Using a commission agreement is a smart move whenever there’s the potential for misunderstanding about commissions.
It’s especially valuable when hiring new staff who will be paid entirely or in part on commissions. If you are an employee who works on commission but has not received a commission agreement, it may be prudent to ask for one.
A commission agreement is not legally required for employers and employees who operate on a commission basis. However, using them to ensure all parties are clear is a good idea. If there is a dispute, a legally executed commission agreement is an important document to help resolve the issue.
What to Include in a Commission Agreement?
Here are the elements to include in a commission agreement.
- Effective Date: The date the agreement is entered into by all parties
- Principal Name and Address: The employer’s name and address
- Agent Name and Address: The employee’s name and home address
- Agreement Items: The items the agent will sell on the principal’s behalf. In some cases, this is referred to as the Scope of Service
- Term: The date on which the agreement will end
- Geography: The area or territory in which the agent may sell the principal’s items
- Commission Earnings. The financial terms of the agreement
- Confidentiality: The privacy guidelines and penalties for violation
- Termination: The conditions under which either party may end the agreement
- Representation: Statement confirming that all parties are authorized to enter into the agreement
- Governing Law: The jurisdiction covering the agreement
- Assignment: Whether the contract can be assigned to a third party
- Signatures and Dates
Commission Agreement Best Practices
Here are some best practices to follow when using a commission agreement.
The commission agreement should specify the commission rate and how your revenue share is structured. Being more specific about the fee structure leads to a more effective agreement. With clear agreements, sales managers, agents, and principals can be confident and motivated to earn high commissions.
When presenting your proposed commission agreements to potential employees or agents, transparency is essential. A commission agreement sample can be used to walk through the terms and conditions and assist with negotiations.
Transparency, especially around conditions that may be controversial, such as territories covered, helps potential employees to understand the what and the why.
Whether in person or via a Zoom call, presenting the commission agreement face-to-face is essential. You do not want to email the agreement without explanation or context.
Presenting face-to-face also allows for a clear discussion of expectations, culture, and roles within the organization.
Commission Agreement Sample
To learn more, and to see a sample commission agreement, see the example below.