How Do I Word a Legal Commission Contract for Sales People?

by Ciaran John

A commission contract details the actions your employees can take to earn commissions, as well as the way you make those payments. Contracts involving sales employees are often far more complex than those involving salaried or hourly employees. Aside from explaining the basic employment relationship, a legal sales employee contract also includes definitions of a variety of commonly used terms.


The United States Department of Labor defines a commission as a payment made to an employee upon completion of a task. However, commissions are not among the types of compensation covered by federal employment laws. Consequently, you must ensure that your employment contracts include an explanation of the term "commission" that complies with your state's labor laws. Under laws in the state of New York, commissions are defined as payments that are tied to revenues or unit sales. In Colorado, commissions are wages paid in accordance with an agreement involving an employer and an employee. You should include an explanation of the term "commission" in each contract. You might need to produce different employment contracts for each state if you run a firm that operates across state lines.


When you create commission contracts for sales people, you must identify the parties involved in the agreement. Explain whether the sales people are employees or independent contractors. You must also explain the circumstances under which an employee can earn commissions. In many instances, sales people only earn commission on sales they procure. If your contract does not limit payments to these sales, then your employees could legally claim commissions on sales that they neither solicited nor had any direct involvement in.


A sales contract should include parameters, otherwise your former employees could claim commissions on sales that occur after they have left your firm. Therefore, a contract should include a start date and a termination date, or at least an explanation of the circumstances in which either party can end the contractual agreement. California and other states have rules in place requiring employers to pay earned commissions to employees within a certain time period after a contract ends. Make sure your contracts comply with state laws.


Laws in some states let employers charge back commissions that have already been paid to employees. Your contract must include an explanation of the circumstances under which chargebacks might occur, and the manner in which you can reclaim the money. Likewise, California, New York and other states let employees take draws against as yet unearned commissions. However, such payments are often subject to minimum wage laws, in which case you might have to include rules about minimum draws in the contract.


Employment laws are subject to change, and some states have ambiguous rules that have been interpreted differently by courts over the course of time. You should always ask a state licensed attorney to produce your employment contracts. You should also ask an attorney to regularly review existing employment contracts to ensure that changes in the labor laws have not rendered the contracts obsolete. Imprecise definitions and outdated information can lead to labor disputes that often result in expensive court cases.

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