Commission
Produced in partnership with Keith Bryant KC of Outer Temple Chambers
Practice notesCommission
Produced in partnership with Keith Bryant KC of Outer Temple Chambers
Practice notes
Some employers, typically those with employees engaged in sales roles, operate commission schemes. Under commission schemes, part or sometimes all of an employee's Earnings are paid as commission rather than as basic pay. Commission is a payment that is generally dependent upon the level of sales achieved; the higher the level of sales, the greater the amount of commission paid. In this way, employees can be motivated to perform to the best of their abilities since their earnings are directly linked to their level of work achievement. The employees benefit because they earn more and the employer benefits because greater sales are achieved for its business.
Structure of commission schemes
The structure of commission schemes varies greatly but, as indicated, they usually provide that commission will be paid to employees depending on the level of sales achieved. Depending on the type of business involved, commission may be based on the level of investment made by clients or the number of leads generated rather than sales as such.
A commission scheme may be freestanding or it may be linked to,
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Earnings definition
What does Earnings mean?
The annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis (eg 7p), and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period. For example, earnings of £2 million, with 10 million shares in issue would give an EPS of 20p. You may see earnings used in several ways: • reported earnings: the figure in the company’s accounts • underlying earnings: the figure derived from reported earnings by excluding any one-off items (eg profit from the sale of land which is not part of the company’s normal business) • diluted earnings: earnings after adjustment has been made for shares that may be issued in the future if holders of options, warrants and convertibles choose to exercise their rights.
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