Commission Sales Draw Agreement

Commission sales draw agreements are a common practice in the sales industry, aimed at providing a fair and structured framework for both sales representatives and their employers. These agreements outline the terms and conditions of a base draw, against which any commissions earned by the salesperson are reconciled. If you are drafting your own Commission Sales Draw Agreement, we have created a template that you can customize to fit your organization’s specific needs.

What is a Commission Sales Draw Agreement?

A commission sales draw agreement is a contractual arrangement between an employer and an employee, outlining the terms under which the employee will receive a base draw against future commission earnings. In essence, the employee receives a guaranteed minimum income each pay period, which is then deducted from their earned commissions. This ensures that the employee has a reliable source of income, even if their commissions fall below the base draw amount.

Key Components of a Commission Sales Draw Agreement

1) Base Draw Amount

The base draw amount is the minimum income that the employee will receive each pay period, regardless of their actual commission earnings. This amount is typically set based on the employee's expected commission earnings or industry standards.

2) Commission Structure

The commission structure outlines how the employee's commissions will be calculated and paid, including any tiers or bonuses based on sales performance.

3) Recovery of Draw

The agreement should specify how and when the base draw will be recovered, either through future commission earnings or repayment if commissions do not cover the draw amount.

4) Termination Clause

A termination clause should outline the conditions under which the agreement can be terminated, including reasons such as poor performance or misconduct.

5) Reporting Requirements

Both parties should agree on reporting requirements for tracking sales performance and commission earnings, ensuring transparency and accountability.

Commission Sales Draw Agreement Template

This Commission Sales Draw Agreement (“Agreement”) is made and entered into as of [Effective Date], by and between [Company Name], a [State] corporation, with its principal place of business at [Company Address] (“Company”), and [Employee Name], residing at [Employee Address] (“Employee”).

1. Employment and Duties

The Company agrees to employ the Employee as a [Job Title]. The Employee agrees to diligently perform the duties and responsibilities assigned by the Company.

2. Compensation

The Employee shall receive a draw against commissions in the amount of [Draw Amount] per [week/month] (“Draw”). This Draw is an advance against future commissions earned by the Employee.

3. Commission Structure

The Employee shall earn commissions based on the following structure:

• [Commission Rate]% of sales revenue generated by the Employee.
• Additional bonuses or incentives as outlined in [Company’s Commission Plan/Policy].

4. Draw Reconciliation

The Draw shall be reconciled against the commissions earned by the Employee on a [monthly/quarterly] basis. If the commissions earned exceed the Draw, the Employee shall receive the difference. If the Draw exceeds the commissions earned, the excess amount shall be carried forward and deducted from future commissions.

5. Term and Termination

This Agreement shall commence on [Start Date] and continue until terminated by either party with [Notice Period] written notice. Upon termination, any outstanding Draw amounts shall be reconciled against the final commissions earned.

6. Confidentiality

The Employee agrees to maintain the confidentiality of all Company information and not to disclose any such information to third parties without the Company’s prior written consent.

7. Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of [State].

8. Entire Agreement

This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

[Company Name]

By: [Authorized Signatory]

Title: [Title]

[Employee Name]

Benefits of a Commission Sales Draw Agreement

1) Stability

Employees have the security of a steady income, even during slower sales periods.

2) Motivation

By providing a base draw, employees are motivated to work towards meeting and exceeding their sales targets to earn additional commissions.

3) Risk Management

Employers can manage the financial risk associated with fluctuating sales by setting a base draw amount that aligns with their business goals.

4) Transparency

Clear terms and reporting requirements promote transparency and accountability for both parties involved in the agreement.

Conclusion

In conclusion, a well-drafted Commission Sales Draw Agreement can create clear expectations and responsibilities between the employer and the employee in a commission-based sales position. By outlining the terms of the draw, the sales goals, and the commission structure, both parties can work towards a mutually beneficial relationship that encourages motivation, accountability, and transparency. With a solid agreement in place, sales professionals can focus on achieving their targets, while employers can ensure fair compensation and performance evaluation.