Commission

What it means

Commission is remuneration expressed as a percentage of the value of a deal brokered or closed. An employee, commercial agent or intermediary earns it for bringing in the business. It motivates results, since pay grows with volume, and the company pays only for actual success.

For an employee, commission is part of pay, often as commission-based pay or a performance element on top of a base, and is taxed and subject to contributions like any wage. An external partner working under a commercial agency contract or brokerage contract invoices it and is taxed on it as business income.

Online, the equivalent is affiliate marketing, where partners earn commission on sales or sign-ups they drive from their websites. The principle is the same: pay is tied to outcomes, not time spent.

How it works in practice

The contract should state exactly what amount commission is calculated on, for example the price excluding VAT, when entitlement arises, on signing or only once the customer pays, and what happens on cancellation or complaint. Ambiguities are the most common cause of disputes with agents.

In commercial agency the law protects the agent: after the contract ends, the agent may be entitled to commission on deals they introduced and to an indemnity for the clientele they built up. These claims must be factored in when planning to end the relationship.

In the accounts, commissions to external partners are shown as services and accrued according to when entitlement arises. If commission arises in one year and the invoice arrives the next, it is recorded as a liability or provision in the year it relates to.

What to watch out for

A commission scheme can drive selling at any cost: discounts that boost turnover but cut margin, or sales to customers who pay badly. Linking commission to paid invoices and to margin, not just turnover, helps.

If an external partner effectively works as an employee, for one client, under instructions and set hours, the tax authority or labour inspectors may reclassify the relationship as dependent work. The company then pays back taxes and contributions with penalties.