What Is a Commission?
A commission is a form of earnings paid to employees based on their ability to sell products, services, or subscriptions, often linked to meeting specific sales targets. Some employees receive commissions in addition to a fixed salary, while for others, it may be their primary source of income.
Understanding Commissions and Why They Matter
Commission-based pay structures are commonly used in sales, and occasionally marketing, to drive performance and reward results.
Commissions may be integrated into an employee’s standard paycheck or issued separately, depending on the employer’s payroll practices. The amount is typically calculated as a percentage of total sales, meaning higher sales volumes translate into greater commission earnings. Industries such as tech sales, pharmaceuticals, real estate, and staffing frequently rely on commission structures to encourage productivity and growth.
Employers should also be mindful that not all commission-paid employees qualify as exempt from overtime. Additionally, certain states require that employers list specific commission-related details on employee pay stubs when commissions make up part or all of their compensation.
To stay compliant, it’s essential to review the guidelines established under the Fair Labor Standards Act (FLSA), along with interpretations or updates from the U.S. Department of Labor. State-specific rules may also apply, depending on where your company is located. While it may take some additional effort, using a trusted payroll partner like Beyond can help simplify compliance and ensure your compensation practices align with labor regulations.