Employment contract for a sales employee on commission

A sales employee's pay is partly in the contract and partly in a commission plan the employer wants to be able to change, and the law has views on both: commission that has been earned is wages that cannot be withheld, deductions and clawbacks need written consent, holiday pay must include the commission the employee would have earned, and the minimum wage applies in the month nothing closes. The contract has to fix the relationship between the contract and the plan, say when commission is earned and what happens when the employee leaves, and contain the covenants a sales role needs. I draft that contract for the employer for a fixed fee of £595, delivered in five working days, as a template for the sales team.

Who this is for

Employers in England and Wales with sales staff, account managers and business development executives paid by base salary and commission, who want the contract and the commission plan to work together.

What matters in a commission-based sales employee's contract

The commission plan and whether it is contractual

The contract should state the base salary, say that the employee participates in a commission plan, and either set out the plan or incorporate a plan document the employer may vary, with the contract saying what the employer may change (rates, targets, the plan for future periods) and what it may not (commission already earned); a plan the contract describes as discretionary is still contractual once the employee has worked under it and earned commission, and an employer that wants to change rates mid-year should have reserved the right in the contract for future periods and should give notice.

When commission is earned and what happens on leaving

The plan should define when commission is earned (on the customer's order, on invoice, or on payment, which is the usual protection against bad debts), how it is calculated and reported, when it is paid, and what happens on termination: commission earned before leaving is paid, commission on deals that close after leaving is paid only if the plan says so, and the employee's entitlement during notice and garden leave is stated; commission earned is wages under the Employment Rights Act 1996, and an employer that withholds it on departure faces an unlawful deductions claim with no cap.

Clawback, deductions and the written consent they need

Clawback of commission paid on a deal that is later cancelled or unpaid is lawful only if the contract or the plan provides for it and the employee has agreed in writing in advance, because section 13 of the Employment Rights Act 1996 prohibits deductions from wages without a contractual term or prior written consent; the contract should contain the consent, define the events that trigger clawback, limit it to the commission attributable to the deal, and set the period after which clawback no longer applies, with a clawback that could leave the employee below the minimum wage in a pay period adjusted accordingly.

Holiday pay that includes commission

Holiday pay for a worker whose pay includes commission must reflect the commission they would have earned, calculated on their normal remuneration over the reference period under the Working Time Regulations 1998 as amended, so that an employee is not deterred from taking leave by losing commission; the contract and the plan should state how holiday pay is calculated for commission earners, which the employer's payroll must then apply, because the claim for underpaid holiday is the one commission earners bring when they leave.

The minimum wage floor in a bad month

The National Minimum Wage Act 1998 applies to each pay reference period, and a sales employee whose base salary is low must receive at least the minimum wage for the hours worked in a month when no commission is earned, with commission counting towards the minimum only for the period in which it is paid; the contract should set a base salary that meets the minimum wage for the contracted hours on its own, and the plan should not rely on commission to top it up, because an employer that pays below the minimum in a bad month is in breach whatever the annual total.

Targets, territory and the restrictive covenants a sales role justifies

The contract should state the employee's territory or accounts and the employer's right to reallocate them, the targets and the consequences of missing them (a performance process, not an automatic dismissal), and the covenants a sales role justifies: confidentiality of customer and pricing information, a non-solicitation of customers the employee dealt with for a stated period after leaving, a non-dealing clause, a non-solicitation of staff, and garden leave during notice, drafted no wider than the employer's legitimate interest so that a court will enforce them; the usual terms (written particulars under section 1 of the Employment Rights Act 1996, notice under section 86, the handbook) apply as in any contract.

What it costs

Employment contract, £595. One template you can reuse for a grade of staff. Five working days.

Staff handbook and core policies, £995. Five working days.

Buying online forms the engagement on payment. The scope is what the employment contracts and handbooks page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke contract drafted for how you employ people
• Restrictive covenants drafted at a scope a court will uphold
• Confidentiality and intellectual property provisions that put ownership where it belongs
• The statutory particulars, so the document does the job section 1 of the Employment Rights Act 1996 requires it to do
• Flexibility clauses where you genuinely need them, drafted to survive challenge
• Core policies: disciplinary, grievance, sickness absence, equal opportunities, data protection and, increasingly, AI use
• One round of amendments

What is not included

• Acting for employees
• Employment tribunal representation
• Payroll, pensions auto-enrolment and tax
• Immigration and sponsor licence work
• Day to day HR handling, disciplinaries, grievances and redundancy processes

Questions I am often asked

Can we change the commission rates during the year?

For future periods, if the contract reserves the right and notice is given. Commission already earned under the existing plan cannot be reduced; it is wages.

An employee left and their biggest deal closed a month later. Do we owe commission?

What the plan says: if commission is earned on payment and the plan provides nothing for post-termination deals, no; if the plan pays on deals closed within a stated period after leaving, yes. The contract and plan decide it in advance.

Can we claw back commission on a deal the customer cancelled?

If the contract and plan provide for clawback and the employee consented in writing in advance, yes, limited to the commission on that deal and subject to the minimum wage. Without the written consent, the deduction is unlawful.

Related guidance and services

• Employment contracts and handbooks, £595, the service this page describes
• Consultancy and contractor agreements, £595
• Settlement agreements for employers, £795
• Employment contract for a business development manager
• Consultancy agreement for a sales consultant on commission

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.