Commission clause: a sales sample and the written plan rules

Sample clause

Written for commission plan for a sales consultant at Pacific Crest Solar, a fictional San Diego home solar installer.

Commission. (a) Rate. The Employee earns commission of 4 per cent of the Contract Value of each Qualifying Sale, excluding taxes and financing charges. (b) Earned. Commission is earned when the system is installed and the customer's first payment is received. (c) Paid. Earned commission is paid on the second regular payday of the month after it is earned, with a statement showing each sale. (d) Chargeback. If a customer cancels within 90 days after installation and the Company refunds the customer, commission on that sale is deducted from future commission, never from base wages below the minimum wage. (e) Draw. The Employee receives a recoverable draw of $1,500 a month against commission for the first three months. (f) After leaving. Commission on sales signed before the Termination Date and installed within 60 days after it is earned and paid on the usual schedule.

Sample wording, not legal advice.

Variants

What to negotiate

• Define earned

  Commission earned on signing, on installation, or on customer payment are three very different deals. The later the event, the more risk sits with the salesperson. The clause should name the event precisely and say how cancellations before it are treated.

• Chargebacks and wage law

  Chargebacks are usually lawful when the plan says commission is not earned until a condition is met. Deducting chargebacks from base wages, or taking pay below the minimum wage, can breach state wage laws. Limiting chargebacks to future commission, as the sample does, is the safer approach.

• Post termination commission

  Salespeople who leave often have deals in the pipeline. A clause should say which pending deals still pay, within what window, and on what schedule. Without one, disputes over whether commission was earned before leaving are among the most common wage claims.

The risk of leaving it out

An unwritten or vague commission arrangement breaches the written plan rules in states such as New York and California, and invites wage claims when a salesperson leaves. In those claims, ambiguity is usually read against the employer, and penalties for late payment of earned wages can exceed the commission in dispute.

Written plan duties

New York Labor Law section 191 requires commission salespersons to be paid under a written agreement setting out how wages, salary, drawing account and commissions are calculated, the frequency of payment, and how wages are paid after employment ends, and requires commissions to be paid at least monthly and by the last day of the month after they are earned. California Labor Code section 2751 requires a written commission contract for employees working in California, signed by the employer with a copy to the employee. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

Earned, payable and chargeback events

Signing: no commission earned, deal recorded. Installation and first customer payment: commission earned. Second payday of the next month: commission paid with a statement. Cancellation with refund within 90 days after installation: charged back against future commission. Termination: sales signed before leaving and installed within 60 days still earn commission. Writing this event table into the plan, as the sample does, is the single most useful step in avoiding disputes.

Commission and overtime

Commissioned employees are usually still non exempt under federal law unless an exemption applies, so overtime may be owed. The Fair Labor Standards Act has a specific exemption for some retail and service establishment employees paid mainly by commission, at 29 USC 207(i), with conditions on the regular rate. Where no exemption applies, commission earned in a week is part of the regular rate on which overtime is calculated.

Where the clause sits in a generated document

Employment agreements, separate commission plans and commission statements carry these terms. When asking the AI document generator for a plan, give the rate, the earned event, the payment timing, chargebacks, any draw and the post termination rule; the commission statement example shows the monthly report that goes with it.

Documents that carry this clause

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.Sales agency agreement with a commission ladder and a named territoryA sales agency agreement has to answer two questions before anything else: what the agent is allowed to promise on your behalf, and exactly how the commission is worked out. This finished example answers both on the page, with a four band ladder from 6.0 to 10.5 per cent, a worked example on $520,000 of sales, and a table of six decisions the agent may and may not make.

Questions people ask