A sales commission agreement is a written contract between a business and a sales representative that sets how the representative is paid for the sales they make. Manufacturers and wholesalers use it to hand promotion and selling to independent professionals without building a sales team of their own. The agreement sets the rate, the payment timing, and the duties on both sides.
Last Updated: October 2026. This guide is reviewed and updated regularly to reflect current law. If you notice an error or outdated information, please contact us.
A commission agreement is a contract between a seller and a sales agent. The seller pays the agent an agreed sum for selling its products. That payment is called a commission, and it gives the contract its name. Most plans pay a commission on each sale, though other structures exist.
Three roles come up in almost every commission agreement:
The commission contract is generally needed by businesses that don’t plan to hire sales representatives and sign an employer-employee sales commission agreement. A sales commission agreement lets lawfully work with independent contractors. For a business ordering sales representative services, it means that they will not have to pay income tax typically withheld from employees’ salaries.
Commission plans differ in how much of the pay is fixed and how much depends on results. Compare the four common plans before you draft the agreement, because the plan you pick shapes the commission formula and the payment terms.
The salary is often set at 60% of total pay (the fixed part) and the commission makes up the other 40% (the variable part). This plan helps a company keep its sales representatives when the company's results depend heavily on how well the agents perform.
With this plan, a sales representative's income depends solely on the sales they close. There is no security of a steady salary. Businesses that do not have a lot of capital benefit from this commission plan most of all.
With this plan, the sales representative earns their pay by reaching a set target. The target can be annual, quarterly, monthly, or weekly. If the representative reaches only part of the target, they receive a matching part of the commission.
A tiered plan offers a higher commission as sales reach substantial milestones. Representatives earn an increased rate when they consistently reach their goals and close more deals than expected.
Anna Baker sells $20,000 of products in one month for a wholesaler. Here is what she earns under each of the four commission plans, using simple example rates. Your own rates and targets will differ, so run the numbers for your agreement before you finalize it.
| Plan | Example terms | Anna's pay |
|---|---|---|
| Base salary + commission | $2,400 fixed salary plus 8% of sales | $4,000 ($2,400 + $1,600) |
| Straight commission | 10% of sales | $2,000 |
| Relative commission | $3,000 commission for reaching a $25,000 target, paid in proportion to the target reached | $2,400 (80% of the target) |
| Tiered commission | 5% on the first $10,000 of sales and 8% above that | $1,300 ($500 + $800) |
The figures are for illustration only. Change one rate or one target and the order of the plans changes, so test your own numbers before signing the agreement.
A sales commission contract is a type of sales agreement that lays out the financial relationship between a manufacturer or wholesaler and a sales representative. It also covers situations that could come up while the two parties work together. Most commission agreements include the provisions below.
A sales commission contract covers a lot of details, so it helps to build it clause by clause. The ten steps below follow the usual order of the document, from the effective date to the signatures.
At the beginning of the commission agreement template, write the date it is created and the names of the contractor (or sales representative) and the company that ordered the service.
Outline the conditions of the contractor's work: when the service starts, how long it lasts, a detailed description of the work, and the working hours. You can also add the invoicing terms, the base compensation, any bonuses, and the sales commission the contractor receives.
The same section should specify that if the contractor breaches the terms of the contract, they will not be entitled to getting their compensation. The terms when it might happen should be explicitly outlined by the company.
Many agreements put the full terms of the engagement in a separate exhibit attached to the main document. If you do, mention in the agreement that the exhibit holds the detailed description of the work and the compensation.
This section of the commission agreement should state that the parties work as independent contractor and the company and it means that it is the contractor’s obligation and responsibility to pay and withhold taxes connected with their services. The contractor also has the right to choose the manner in which they will perform their services.
Add a provision that the contractor holds the company harmless against all liabilities and losses connected with the performance of the service.
Set out the proprietary rights of the company. For instance, the parties might agree that all ownership, title, and intellectual rights in the work developed for the company belong to the company. They might also agree that the result of the contractor's service is the company's sole and exclusive property.
This provision is one of the most important ones. The most common covenants are:
Other important aspects to cover are the contractor's remedies for breach, representations and warranties, and disgorgement of profits if the contractor breaches the agreement.
State that all notices about the commission agreement are given in writing.
Mention that the contractor returns all physical materials that belong to the company and were given to them in connection with the service. Add that the contractor does not keep any of those materials.
It is up to you whether to include other miscellaneous provisions in the commission agreement. it is typical to include Waiver, Assignment, Dispute resolution, and Governing law sections. The more provisions the parties include, the fewer chances will be that any disputes arise.
Finish with the signatures of the parties, which show their consent to everything in the commission agreement. Next to the signatures, add the names and titles of both parties' representatives.
Following these steps saves time when you write your own commission agreement. However, if you want to get an entire agreement written specifically for your business, better consult an attorney or law firm.
It is a contract between a seller and a sales agent. The seller pays the agent a commission for the products the agent sells, and the contract sets the rate, the payment timing, and the duties of each side.
The four common plans are base salary plus commission, straight commission, relative commission, and tiered commission. They differ in how much of the pay is fixed and how much depends on sales.
It usually names both parties and describes the work. It also states when commissions are earned and paid, gives the commission formula, covers returns and cancellations, and lists any bonuses. Many agreements add non-compete and non-disclosure clauses.
The agreement sets the date. A commission can be earned when a product is booked or when the customer pays for it, and the two moments can be weeks apart.
General information, not legal or tax advice.
