Clawback clause: recovering a bonus or commission already paid

Sample clause

Written for an employment contract between Harbour Street Capital, a fictional Sydney insurance broker, and a senior account executive paid salary, sales bonus and a deferred bonus.

Clawback and Malus. (a) If a client cancels a policy, or receives a refund of premium, within 6 months after the Company paid a Sales Bonus calculated on that policy, the Employee must repay the part of the Sales Bonus attributable to the cancelled or refunded premium. (b) The Board may reduce to zero any Deferred Bonus that has not vested if, before vesting, it reasonably determines that the Employee engaged in serious misconduct or that the results on which the award was based were materially misstated. (c) The Company will give written notice of any amount due under paragraph (a), with its calculation, and the Employee must repay it within 30 days, failing which the Company may set it off against future commission or bonus, but not against base salary. (d) This clause survives the end of employment for 6 months.

Sample wording, not legal advice.

Variants

What to negotiate

• Triggers

  The employee's first question is what events allow recovery. Objective triggers, such as a client refund or a restatement of accounts, are easier to accept and to apply than subjective ones such as reputational damage. Employees should push for triggers tied to their own conduct or their own sales, rather than company wide events they could not influence.

• Time limit

  Open ended clawback leaves an employee exposed for years. Commission reversals usually run for the refund or cancellation window, often 3 to 12 months. Clawback for misconduct or misstatement runs longer, commonly two to three years outside regulated sectors and longer inside them. The clause should state the period and whether it survives the end of employment.

• How recovery happens

  Recovery can be by repayment, by set off against future variable pay, or by deduction from wages. Deductions from wages are restricted: in Australia they need the employee's written authorisation for a purpose that is principally for the employee's benefit and must not be unreasonable, and in the UK they need prior written agreement. Setting off against future commission, as the sample does, is usually simpler and less contentious than demanding repayment.

The risk of leaving it out

Without a clawback or malus clause, a bonus or commission once paid generally belongs to the employee, even if the sale later unwinds or misconduct is discovered, unless the employer can prove a separate legal claim. Recovering money already paid is slow and uncertain without a clear contractual right, and the employer may have to pay variable pay it knows was not deserved.

Malus and clawback compared

Malus works before payment: an awarded but unvested bonus, often a deferred portion, is reduced or cancelled. Clawback works after payment: money already received is repaid. Malus is far easier to enforce, because nothing needs to be recovered from the employee's bank account, which is why regulated remuneration regimes rely on deferral plus malus first and clawback second. The sample uses both: clawback for commission on refunded premium, and malus on the deferred bonus. Law checked on 21 October 2026. This page explains how the clause works and is not legal advice.

Trigger table

Common triggers, and how hard each is to apply. Client refund or cancellation: objective, easy to calculate, suits commission. Material misstatement of results: objective once accounts are restated, suits bonuses tied to financial targets. Gross or serious misconduct: needs an investigation and a decision, suits all variable pay. Risk management failure in the employee's area: subjective, used mainly in financial services. Reputational damage to the employer: highly subjective and the most likely to be disputed. Clauses that list triggers and say who decides, such as the Board, hold up best.

Regulators and clawback by country

In Australia, the Financial Accountability Regime, administered by APRA and ASIC, requires banks, insurers and superannuation trustees to defer part of the variable remuneration of accountable persons and to have policies for reducing it, and APRA's remuneration standard requires malus and clawback for some roles. In the UK, the Remuneration Codes in the FCA Handbook require malus and clawback for material risk takers at banks and other covered firms. In the US, listed companies must have policies to recover incentive pay awarded on results that are later restated, under rules adopted by the stock exchanges in 2023. Outside these regimes, clawback is purely a matter of contract.

Tax on clawed back pay

Bonus is taxed when paid. If it is later repaid, getting that tax back can be complicated, depending on the country and whether the repayment happens in the same tax year. That is why the second variant asks for repayment net of tax the employee cannot recover. Employers should take advice on how repayments are treated in payroll before drafting a clawback that may operate across tax years.

Documents that carry this clause

Bonus letter template that shows how the amount was calculatedA bonus letter that gives only a figure invites the one question it cannot answer, which is how that figure was reached. This one shows three components with their target, their actual and the dollars each produced, totals them to $4,250, names the pay date and says plainly that the bonus is discretionary.Employment contractA full time ongoing contract for an operations coordinator on $86,000 plus $10,320 of superannuation. Eleven numbered clauses, a leave table drawn from the National Employment Standards, and a notice table that scales with service.Commission statementA representative earns $5,294.50 in August and banks $3,294.50. The gap is a $2,000 draw being recovered, and the statement is built so that difference is explained on the page rather than in an email.

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