Commission Agreement SHRM: Everything You Need to Know
Commission agreements are an essential part of any business that deals with sales. These agreements outline the terms of payment for the sales representatives and the commission they will receive for every sale made. The Society for Human Resource Management (SHRM) provides guidelines for companies to follow when creating commission agreements for their employees.
In this article, we’ll discuss everything you need to know about commission agreements and how to create a commission agreement that complies with SHRM’s guidelines.
What is a Commission Agreement?
A commission agreement is a contract between an employer and an employee or an independent contractor that outlines the terms and conditions of the employee’s commission payments. This agreement states the percentage or amount of commission the employee will receive for the sale of goods or services.
Commission agreements are typically used in industries such as real estate, insurance, and retail. They provide an incentive for sales representatives to work harder and sell more, as their commission payments are directly tied to their performance.
What are SHRM’s Guidelines for Commission Agreements?
The Society for Human Resource Management (SHRM) is an organization that provides resources and guidance to HR professionals and businesses. SHRM has outlined several guidelines for commission agreements that employers should follow to ensure the agreements are legal and fair.
1. Clearly Define the Terms and Conditions of the Commission Agreement
The commission agreement should clearly state the terms and conditions of the agreement, including the commission rate, how commissions will be calculated, and when commission payments will be made. It should also specify any conditions or requirements that must be met to receive commission payments.
2. Comply With All Federal and State Laws
Employers must comply with all federal and state laws when creating commission agreements. This includes the Fair Labor Standards Act (FLSA), which regulates minimum wage and overtime pay for employees.
3. Provide a Written Copy of the Commission Agreement
Employers should provide a written copy of the commission agreement to the employee. The agreement should be signed by both parties and clearly state that the employee understands and agrees to the terms and conditions.
4. Review and Update the Commission Agreement Regularly
Employers should review and update commission agreements regularly to ensure they are up-to-date with any changes in the law or company policies.
How to Create a Commission Agreement That Complies with SHRM’s Guidelines
To create a commission agreement that complies with SHRM’s guidelines, follow these steps:
1. Define the Terms and Conditions of the Commission Agreement
The first step in creating a commission agreement is to clearly define the terms and conditions of the agreement. This includes the commission rate, how commissions will be calculated, and when commission payments will be made. It should also specify any conditions or requirements that must be met to receive commission payments.
2. Comply With All Federal and State Laws
Employers must comply with all federal and state laws when creating commission agreements. This includes the Fair Labor Standards Act (FLSA), which regulates minimum wage and overtime pay for employees. Employers should also consult with an attorney to ensure their commission agreement complies with any other relevant laws.
3. Provide a Written Copy of the Commission Agreement
Employers should provide a written copy of the commission agreement to the employee. The agreement should be signed by both parties and clearly state that the employee understands and agrees to the terms and conditions.
4. Review and Update the Commission Agreement Regularly
Employers should review and update commission agreements regularly to ensure they are up-to-date with any changes in the law or company policies.
Conclusion
Commission agreements are an essential part of any business that deals with sales. They provide an incentive for sales representatives to work harder and sell more. Employers should create commission agreements that comply with SHRM’s guidelines, including clearly defining the terms and conditions of the agreement, complying with all federal and state laws, providing a written copy of the agreement, and reviewing and updating the agreement regularly. By following these guidelines, employers can create fair and legal commission agreements that benefit both the company and the sales representative.
