By Brigitta Poulos
Many businesses have some form of incentive or bonus scheme to motivate their employees or retain their loyalty. Commission payments are one such type of bonus – they fluctuate based on an employee’s sales or the value they earn for the business and are usually calculated based upon a fee or percentage of the sales.
While there’s nothing wrong with the basic concept of paying for results rather than time, employers must be careful that they’re not breaching their employment obligations by choosing to implement a commission-only wage structure.
In this article, I discuss the intricacies of commission payments, how they can be used as an incentive, and why businesses need to ensure they’re 100 per cent compliant when using any type of commission payment structure.
Commission as an extra incentive
Many industries, such as retail, utilise a system whereby employees are paid an hourly wage or annual salary, but they can also earn greater amounts through a commission scheme that pays a percentage of the employees’ sales.
In this scenario, the commission payment is in addition to their wages, in such a way that if an employee was unable to make the required sales and was therefore eligible for little to no commission in a particular period, the employer wouldn’t be liable for an underpayment claim.
This type of commission is merely used as an incentive to keep employees working hard and striving to reach their goals.
Any business can implement a scheme that offers commission payments as an extra incentive, as this is above and beyond your minimum obligations. However, an award or enterprise agreement can set out rules about how this can be done, so it’s recommended that you seek guidance from our HR Assured team before introducing a paid commission incentive. You’ll also need to carefully consider how the incentive will be introduced; for example, whether you include it in individual contracts or company-wide policies, and how much discretion you will have to change or remove the scheme at any time.
Commission as an employee’s wage
In certain situations, commission payments can form the entire compensation for an employee’s work. However, this must only be permitted by the applicable modern award or enterprise agreement.
For example, the Real Estate Industry Award 2020 allows for employers to engage an employee in commission-only employment but is subject to requirements being met such as the employee’s age, classification level, and employment status. There are limitations on this remuneration scheme that generally means only experienced real estate agents will be eligible, and safeguards must be put in place to ensure minimum thresholds are met.
As a result, the rules surrounding commission-only employees are stringent, and there are relatively few modern awards that permit it at all.
Award and agreement-free employees can only be paid commission on the condition that they are still paid at least the national minimum wage. This doesn’t provide much benefit to employers as effectively it becomes a rose by any other name scenario – if you’re paying a commission that is at least equal to an hourly wage, then you might as well be paying the hourly wage itself.
Making the right decisions
If you’re considering implementing either a commission incentive scheme or are wondering whether you’re permitted under the applicable award or agreement to enact a commission-only employment arrangement, we recommend you seek assistance from a qualified workplace professional. Getting it wrong can mean significant fines from underpayment claims and reputational damage to being contractually obliged to pay unintentionally guaranteed bonuses.
For more information on commission and what it means for you, clients should contact the team at HR Assured via our 24/7 Telephone Advisory Service.
Brigitta Poulos is a Workplace Relations Adviser at HR Assured who loves helping clients and businesses achieve excellent workplace compliance with their obligations and duties, by way of interpretation of relevant employment legislation and awards. She particularly enjoys researching and explaining new or ‘hot’ topics in the workplace relations and human resources fields to our clients.