What is a commission?

A commission is a form of employee compensation based on performance, typically calculated as a percentage of sales, revenue, or other business metrics. It’s widely used in sales, real estate, finance, and recruiting to incentivize employees and drive business growth.

For businesses using Homebase payroll, automating commission tracking ensures accurate payments, wage law compliance, and seamless tax reporting—helping employers avoid payroll headaches.

How does commission-based pay work?

Employees earning commissions may receive them in different ways:

Commission-only pay – Compensation is based entirely on sales or performance.
Base salary + commission – Employees receive a fixed salary plus additional commission.
Draw against commission – Employees get an advance (draw) on future commissions, which is later deducted from actual earnings.

Clearly outlining commission structures in employment agreements prevents disputes and ensures fairness.

Types of commissions

Businesses structure commissions in various ways to align with their goals and industry. Here are some common models:

Type of Commission

How It Works

Percentage-based commission

Employee earns a set percentage of sales or revenue.

Flat-rate commission

Employee earns a fixed-dollar amount per sale or unit sold.

Tired commission

Higher commission rates apply as employees reach sales milestones.

Residual commission

Employee continues earning commissions on repeat business or renewals.

Revenue-sharing commission

Employee earns a percentage of total company revenue or profits.

Payroll and tax considerations for commission earnings

Commission earnings are subject to payroll taxes just like regular wages. Employers must:

Withhold federal and state income taxes from commission payments.
Deduct Social Security and Medicare taxes (FICA taxes).
Calculate overtime pay properly if commission-based employees are non-exempt under the Fair Labor Standards Act (FLSA).

With Homebase payroll, businesses can automatically track commissions, calculate taxes, and ensure compliance with wage laws—saving time and reducing errors.

Simplify commission payroll with Homebase—get started today!

Legal requirements for commission-based employees

Employers offering commission-based pay must comply with:

Minimum wage laws – Employees must still meet federal or state minimum wage requirements.
Overtime laws – Non-exempt employees must receive overtime pay if they work over 40 hours per week.
Commission payment agreements – Employers should have written agreements outlining payment terms, rates, and conditions.

How Homebase makes commission payroll easy

Manually tracking commission payments can be complex, but Homebase payroll simplifies the process by: