Settlement agreement for a sales employee with commission owed

A salesperson's exit is an argument about commission: what has been earned and must be paid, what is in the pipeline and may be claimed later, what the plan says about leavers, and what the employee's holiday pay should have included. A settlement agreement can resolve all of it with a figure, but commission that has been earned is wages the agreement cannot waive, and the figure has to be built from the plan rather than negotiated in the air. The agreement also has to protect the territory and the accounts the salesperson is leaving. The employer gets the agreement and a note on the conversation within three working days for a fixed £795; with the negotiation with the employee's adviser included, the fee is £995.

Who this is for

Employers in England and Wales parting with a salesperson, account manager or business development employee where commission is owed, disputed or in the pipeline.

What matters in a settlement with commission owed

Commission as wages and what the agreement cannot take away

Commission that has been earned under the plan is wages under section 13 of the Employment Rights Act 1996, payable whether or not the employee signs anything, and a settlement that purports to waive earned commission in return for a compensation payment is open to challenge as an unlawful deduction and does not use the thirty thousand pound exemption for it (earned commission is earnings taxed through payroll); the agreement should therefore pay the commission that is earned as earnings, settle the commission that is disputed with a figure allocated to the dispute, and treat the compensation payment as separate, with the accountants confirming the treatment.

The plan, the earning point and the deals in dispute

The commission plan decides when commission is earned (on order, on invoice or on payment), how it is calculated, when it is paid and what happens on leaving, and the agreement should apply it deal by deal: the deals where commission is earned and payable, the deals where the earning point has not been reached, the deals the employee says were theirs and the employer says were not, and any discretion the plan gives the employer; where the plan is silent or ambiguous (which is common), the dispute is about construction, and the settlement figure reflects the risk, with the note helping the employer work through the schedule of deals before it makes an offer.

The pipeline, the deals that close later and the clean break

The agreement should state what happens to deals that close after the termination date: no commission under most plans, or commission on deals that close within a stated period where the plan or the settlement provides, with a schedule of the deals in the pipeline and the treatment of each, so that the employee cannot return in six months claiming commission on a deal they started; the clean break is usually bought with a figure for the pipeline that both sides accept, and the agreement should say that the figure is in full and final settlement of all commission claims, earned, accrued or prospective, listed in the schedule.

Holiday pay that includes commission

Holiday pay for a worker whose pay includes commission must reflect the commission they would have earned, calculated over the reference period under the Working Time Regulations 1998 as amended, and an employer that has paid basic salary only during holiday owes the difference for the period the claim can reach back; the agreement should calculate and pay the underpayment as earnings (or settle it with a figure where the calculation is contested), because a settlement that waives a holiday pay claim without paying it is a waiver the employee's adviser will test, and accrued untaken holiday on termination is paid at the inclusive rate under regulation 14.

Clawback, the settlement figure and the tax

Where the plan provides for clawback of commission on deals that are cancelled or unpaid, the agreement should net the clawback against the commission due only where the plan and the employee's written consent under section 13 of the Employment Rights Act 1996 allow it, should state the net figure, and should set the tax position line by line: commission (earned or settled) and holiday pay go through payroll as earnings, the notice element is post-employment notice pay under section 402B of the Income Tax (Earnings and Pensions) Act 2003 and is taxed as earnings, and only the compensation for loss of employment sits inside the section 403 exemption, with the adviser's fees contribution under section 413A and the employee's tax indemnity; a figure negotiated as one lump sum has to be allocated before it is paid.

The covenants, the accounts and the handover of the territory

The agreement should reaffirm or replace the restrictive covenants (non-solicitation and non-dealing with the customers and prospects the employee handled, non-poaching, with garden leave credited), require the handover of the pipeline, the customer records and the CRM entries, prohibit the retention of customer data under the UK GDPR, allocate the accounts to a successor during garden leave, agree the announcement to customers, and make part of the settlement payment repayable on breach; the salesperson leaving with commission owed is also the salesperson leaving with the relationships, and the agreement should deal with both; confidentiality sits within the limits the law sets (the whistleblowing carve-out section 43J of the Employment Rights Act 1996 requires and the Employment Rights Act 2025 limits on non-disclosure terms about harassment and discrimination, effective on a timetable the regulations set).

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers 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 settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

Can the settlement agreement waive the commission we owe?

Not commission that has been earned, which is wages payable regardless. The agreement pays earned commission as earnings, settles disputed commission with a figure, and keeps the compensation payment separate.

What about deals that close after the employee leaves?

What the plan says, usually no commission, or a figure for the pipeline that buys a clean break. The agreement schedules the deals and settles all commission claims, earned, accrued or prospective.

We paid basic salary only during holiday. Does that matter?

It does. Holiday pay must include commission, and the underpayment is owed for the period a claim can reach. The agreement calculates and pays it, or settles it with a figure where contested.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Employment contract for a sales employee on commission
• Settlement agreement with restrictive covenants

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.