Salespeople are usually paid a percentage from what they sell whether it is automobiles, art, homes or any kind of product. Most sales commission and compensation plans come in a written agreement compensation form so the salespeople understand how they are paid. You can find a sample commission compensation agreement in our Media Gallery and modify it to make it specific to your industry.
A good sales commission plan will pay the employee a percentage on the gross sale amount and not the net sales amount. Gross sales commission are based on what the company made before expenses and net sales commission are what a salesperson might receive once all the expenses for selling the product are deducted.
In the auto industry, it is standard to pay sales commissions and draws based on the gross sales amount, less dealer pack. There are a couple good ways to create a sales commission and compensation plan template.
Sales Commission Payout Templates
First, you can find a sales commission and compensation plan template in our Media Gallery that will give you an idea on what to include in your own company’s sales commission form. How you pay out commission depends upon what type of commission plan you have.
Basically there are two kinds, a recoverable draw and a non-recoverable draw. If you click on the image to the right, you’ll see an example of both a recoverable draw and a non-recoverable draw. Now let’s explain the difference.
- Recoverable Draws – In this type of commission pay plan, the salesperson is given a draw against their commissions with no federal, state, social security or Medicare taxes taken out. Recoverable draws are usually paid between the 1st and the 5th of each month. When actual commission are paid out later in the month, if the commissions made exceed the draw previously paid, the salesperson is paid what is owed, less the draw received earlier in the month.
- Non-Recoverable Draws – This works much the same where the salesperson receives a draw early in the month and when actual commission are calculated if the commissions exceed the draw, the salesperson is paid that amount less the prior draw. The difference here is that if the salesperson's commission is less than the draw received, he or she does not “owe" the draw back and the board or commission plan is wiped clean for the next month.
In these types of sales commission and compensation plan template examples, the salesperson is taxed on the draw when its commission payday, not on draw day. Consider a draw as a way to keep the employee financially afloat until commission payday.
Other Sales Commission Templates
Along with your sales commission agreement, there are two types of sales commission and compensation template examples that you can create using Microsoft Excel or purchase from companies that specialize in sales commission forms.
In today’s world of accounting software systems, however, it’s best to utilize the accounting program to keep track of sales commission through journal entries made to the general ledger as each item is sold. The forms offered by Great American are hand fill-in forms and not computerized forms.
Sales vouchers are helpful to salespeople, however, to keep track of what they can expect come sales commission payday. Once the commission is calculated in the accounting software program, the sales manager can use this three-part sales voucher, seen here at the left, and give one to the salesperson, keep one for the sales folder, and give one to the accounting department.
When you create a sales commission and compensation plan template, make sure you make it industry specific based on whether or not you will include draws and how you will keep track of each salesperson’s commission due. If you do pay employees on commission, you may also want to explore sales commission software like Qcommission that integrates with accounting systems like Intuit’s Quickbooks.