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Commission Agreement: Components and usage

Have you ever wondered that more than 50% of workers in your organization would be willing to leave your company for a 10% salary increase or may be even less that? To attract and retain any employee, compensation is majorly the most important factor, especially in sales. There could even arise a situation when all your employees may leave your organization simply because of poorly designed compensation plan.

The results won�t amuse you. If your organization is struggling to find or strike a balance between company requirements and the compensation needs of employees, it would act as a warning sign to revaluate your compensation plan and commission structure. It is generally not only the salary as a way of remuneration, rather there are other ways out of which Commission is one. Now to enter into a commission agreement, it is important to enter into a commission agreement. The agreement shall contain the terms and condition for the terms of employment and remuneration.

Commission Agreement

Commission agreement is a legal document that protects both the parties. Commission means any kind of payment made for the services taken by any person for any kind of work done. A commission agreement is made between an employer and the employee that basically outlines a variety of factors, which eventually determines the nature of their relationship. It includes:
  • Nature of their relationship
  • The terms and working of their relationship
  • The commission percentage they will earn along with their salary

A commission agreement is a vital tool when hiring new employees into the organization. It is also essential when you are entering into a job as a salesperson where a commission will be the payment method. Your sales would ultimately determine the amount of remuneration at the end of the month. It is not only beneficial for the employer but also for the employee to set up formal terms for their agreement to avoid any sort of misunderstanding. It is also a perfect time for the employer for including a non-compete clause if they decide to have one.

Uses of Commission Agreement

In this agreement, one of the parties i.e. the company engages an entity called the �introducer� who has the task of finding a suitable investor for the company to meet the funding requirements of the company. The Introducer in return receives a certain percentage of the amount of the funds raised by the company through investor. Not only this, a marketing, sales or a distribution agreement could also have a percentage-based commission. The marketing agreement or the sales agreement are of repetitive nature, that is the commission is paid on each sale made.
  • You're hiring a new employee who will be paid in whole or in part on commission and wish to set down everyone's rights and obligations
  • You're being hired and you want to make sure everyone's rights and obligations are documented if your employer hasn't provided a written Commission Agreement

Components of Commission Agreement:

  • Contact Information
  • Commission Structure
  • Documentation
  • Non-Compete Clause
  • Non-Disclosure Clause
  • Acceptance

Important Clauses
  1. Agency:
    The Company appoints the agent and give him exclusive or non-exclusive rights. This clause covers the basic information about the nature of job or the purpose for which the commission agreement is entered into
  2. Independent contractor:
    Whether the relationship is of independent contractor or not.
  3. Duties:
    This clause shall lay down the duties of the agent or the employees as the case may be.
  4. Insurance:
    under this clause the agent will carry liability insurance.
  5. Obligation:
    Obligation that needs to be carried out by both the parties
  6. Compensation and benefits:
    It shall include the terms and conditions applicable under this agreement as agreed between the parties.
  7. Expenses:
    As part of the commission agreement, it shall lay down the expenses that will be reimbursed to the agent/employee.
  8. Term:
    Unless the terms are renewed the agreement shall expire within such time.
  9. Post -Termination:
    The employee must not disclose any confidential information about the company and the employer without any prejudice shall not curb down the rights of the employee.
  10. Exclusions:
    Exclusions if any that shall not be included in the agreement
  11. Entire Agreement:
    This Agreement sets forth the entire agreement and understanding between the parties relating to the subject matter herein and supersedes all prior discussions between the parties. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the party to be charged. Any subsequent change or changes in the Agent's duties or commission will not affect the validity or scope of this Agreement.
  12. Severability:
    If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.
  13. Attorney Fees:
    In case the agreement becomes subject to litigation, then who shall bear the attorney fees
  14. Additional Acknowledgements:
    Both parties acknowledge and agree that: (a) the parties are executing this Agreement voluntarily and without any duress or undue influence; (b) the parties have carefully read this Agreement and have asked any questions needed to understand the terms, consequences, and binding effect of this Agreement and fully understand them; and (c) the parties have sought the advice of an attorney of their respective choice if so desired prior to signing this Agreement.
  15. Joint- Liability:
    Both the parties shall be jointly liable for the covenants entered into the agreement.
  16. Confidentiality:
    Within the period of this agreement and later as agreed between the parties, the employee shall not disclose to third party any confidential information, documents or knowledge pertaining to the operation or business of the Company.
  17. Waiver:
    If either party fails to enforce any provision contained within this agreement, it shall not be construed as a waiver or limitation of that party�s to subsequently enforce and compel strict compliance with the very provision of this Agreement.
  18. Governing Law:
    Mention the Country and appropriate Jurisdiction that shall govern the Jurisdiction of this agreement.

Commission agreement is an agreement between the employer and employee and various other parties where commission is paid on certain activities for which the agreement has been entered into. This agreement will benefit both parties because it outlines in formal terms the details of the work relationship.

Employees benefit from having written terms in case there is a misunderstanding with the employer. This agreement will protect the representative's rights. Employers can use these agreements to protect their business. This agreement will explain what kinds of commission payments will be made to the person selling products, or the employee.

Additional details may include product prices, when the payments will be made, what the payments are based on, payment method, commission percentages, and if there is a limit on the amount of commission that a seller can make. A commission agreement can be used when you're hiring a new employee who will be paid in whole or in part on commission and wish to set down everyone's rights and obligations.

You're being hired and you want to make sure everyone's rights and obligations are documented if your employer hasn't provided a written Commission Agreement. Contact Information. There are various components od commission agreement such as Authorization, Commission Structure,Documentation, Non-Compete Clause,Non-Disclosure Clause, Acceptance. Therefore, commission agreement can be cautiously used for the following purposes.

  1. Miguel �ngel Gallardo Ortiz , Official Commercial Agent, Commission Agreement, available at (Last visited 7 July 2020
  2. Form Swift, what is Commission Agreement, available at (Last visited 7 July 2020)
  3. Global Negotiator, Commission Sales Agreement, available at (Last visited 8 July 2020)
  4. Legal zoom, The basics of sales commission agreement, available at, (Last visited 10 July 2020)
  5. Rocket Lawyer, commission Agreement Basics, available at (Last visited 11 July 2020)
  6. Seq Legal, Commission Agreement, available at ( Last visited 12 July 2020)

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