What is Commission Agreement?

A commission agreement is a contract between two parties, usually an individual or company and an independent contractor, that outlines the terms of a commission job. For example, the agreement should clearly state the scope of the job, the payment structure, the timeline for completion, and any other requirements or conditions that must be met.

This agreement aims to look after the structure of the sales commission, which will control the compensation for goods or services sold on the company’s behalf by the representative.

StartupHR Toolkit helps you to create commission agreements easily also, you can download other HR policies to protect your organization. The Toolkit offers a range of features, from employee onboarding to the exit process, that can help startups save time and money. Additionally, it helps you customize policies and HR documents according to your requirements.

Why is a Commission Agreement Important?

The sales commission agreement sets up a professional contract between an individual and the company. Under this agreement, the individual can sell the company’s goods and services and consents to receiving payment following the business’s sales commission policy.

Important Points When Drafting a Commission Agreement Sample

1. Commission Contengies

Make sure an employee is aware of the expectations when drafting. For example, they must meet the targeted sales level and submit all the reports on time if the employee wishes to receive a decent amount of residual commissions. In addition, during the termination of an employee, they must receive all their commissions for all the completed sales until their termination.

2. Scope of the Agreement

The agreement must mention the commission’s scope, which includes the services to be provided and the outcome expected from the employee. The agreement ensures that no dispute will arise in the future as both parties are aware of the rules and regulations of the agreement.

3. Specify the terms of Payments

The agreement should clearly state the payment procedure, which includes how the commission will be paid when it will be paid, and any payment methods that might apply.

4. Non-Compete Clause

It is essential to include the non-compete clause to protect the parties involved. The clause should include details on the actions the commission agent cannot perform.

5. Duration of the Agreement

The agreement should mention how long it will last. Stating about the duration of the agreement protects both parties from misunderstandings, and the agreement ends when it is supposed to.

6. Include a dispute resolution clause

The agreement should include a dispute resolution clause to outline how any disputes that arise between the parties will be handled. This Clause should consist of details of the dispute resolution process and any applicable laws that will govern the resolution process.

If in case a dispute arises, there are three ways to deal with it:

1. Negotiation/ Mediation
2. Arbitration
3. A specific court that will give jurisdiction for the dispute

7. Sales Activity Report

According to the agreement’s terms and conditions, the employees must create and complete a sales activity sheet for every sales week by the end and deliver it to the designated person through email or in person. In addition, the agent should submit the sales report on the day of each sales month.

The employees should submit the monthly travel and expenses report by the __ day of each sales month.

8. Commission Payments

In addition to the requisite commission payments based on the products/ services sold and paid for in each sales month, the Employee shall be paid a base wage of [INSERT AMOUNT IN INR] every week.

9. Expected Sales Result

After the training session, the employee is to make a concerted effort to increase sales activity. They are also required to meet a minimum sales objective within ____ days. These sales activities and performance shall be evaluated weekly for the first _____ days of the initial sales month.

Important Clauses in the Agreement

1. Non-Circumvention Clause

When negotiations have a high danger of one party (often the firm) engaging in unethical behavior, a non-circumvention or good faith clause is typically used.

2. Confidentiality

Confidentiality refers to the obligation of a business to protect private or sensitive information from being shared with third parties. Businesses must maintain confidentiality to protect the company’s assets, customers, and employees.

3. Exclusivity Clause

Under the exclusivity clause, the sales agent has the sole distribution right in a particular assigned area. Another prime component under this clause is that the original seller can’t appoint any other distributing agent in the same designated area. Also, the seller constitutes the right whether the distributing agent can further sub-assign the right of redistribution or not.

How to Write a Commission Agreement Format

1. Introduction

• Date of the agreement
• Names and contact information of the agent(s) and principal(s)
• Purpose and objectives of the agreement

2. Appointment and Authority

• Statement of the principal appointing the agent as its representative
• Description of the agent’s authority to sell products or services on behalf of the principal
• Scope and limitations of the agent’s authority, if any

3. Commission Structure

• Explanation of the commission structure, including the percentage or amount of commission the agent will earn for each sale.
• Details on how the commission will be calculated (e.g., net sales, gross sales, or a specific formula).
• Any additional incentives or bonuses for achieving certain sales targets or milestones.

4. Duties and Responsibilities

• Overview of the agent’s responsibilities, such as marketing, prospecting, negotiating, and closing sales.
• Expectations regarding the agent’s performance, professionalism, and adherence to company policies.
• Any specific reporting or documentation requirements.

5. Sales Targets and Quotas

• Clearly defined sales targets, quotas, or performance metrics that the agent is expected to meet.
• Explanation of how the agent’s performance will be measured and assessed.
• Consequences for failing to meet the targets or quotas.

6. Payment Terms

• Frequency of commission payments (e.g., monthly, quarterly, or upon completion of sales).
• Method of payment (e.g., direct deposit, check, or wire transfer).
• Timing of payment (e.g., As soon as the payment period ends).
• Any applicable deductions or adjustments to the commission payments.

7. Confidentiality and Non-Disclosure

• Obligations of the agent to maintain the confidentiality of the principal’s proprietary information, trade secrets, and customer data.
• Restrictions on the agent’s ability to disclose or use confidential information for purposes other than the agreement.

8. Termination

• The situations under which either party may terminate the contract (e.g., breach of contract, failure to meet performance targets, or by mutual agreement).
• Notice period required for termination.
• Consequences of termination, such as final commission payments or return of company property.

9. Governing Law and Jurisdiction

• Choice of governing law and jurisdiction that will govern the agreement
• Mediation, arbitration, and litigation are all methods for resolving disputes.