Free sales commission agreement template

How to fill it in

Two decisions carry most of the risk and should be settled before you open the file: how the salesperson is classified, and when commission is treated as earned. The rest follows from those. If you are the salesperson rather than the company, read the same list as the questions to get answered in writing before you start.

• Classification: decide employee or independent contractor honestly, because it determines which laws apply and whether overtime and payroll taxes are owed. The label in the contract does not settle it.
• The earning event: pick exactly one of booked, shipped, invoiced, or collected, and delete the others. This is the most important sentence in the document.
• The tail: decide how long after termination a departing salesperson still earns on deals they sourced. Silence here is what produces litigation.
• Draw: if you offer one, say whether it is recoverable, and say what happens to a negative balance on termination.
• Chargebacks: name the grounds and put a time limit on them, rather than reserving a general right to adjust.
• Exhibit A: put the rates, quota, accelerators, caps and house accounts here rather than in the body, so next year's plan is a new exhibit rather than a renegotiation.
• Before signing: check your state's rules on written agreements, payment deadlines and wage deductions.

When is a commission earned? The clause everything turns on

Almost every commission dispute reduces to one question: had the commission been earned before the salesperson left? If the agreement answers it clearly, the agreement generally governs. New York's Court of Appeals put the framework plainly in Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008), holding that the earning of a commission is governed by the parties' agreement, or, absent an agreement, by the default common law rule tying it to producing a ready, willing and able purchaser. The same decision confirms that parties may agree that the calculation includes downward adjustments. If the agreement is silent, the gap filler is the procuring cause doctrine: the salesperson who brought about the sale gets the commission even if it closes later. It is long established, stated in cases such as Reed v. Kurdziel, 352 Mich. 287 (1958), and applied in states as varied as Illinois and North Dakota. Courts have equally confirmed that parties can contract around it. The practical consequence for a company is blunt. Say nothing, and you may owe commission on deals that close months after a rep has gone.

• BOOKED, on signature of a binding order. Best for the salesperson, and simplest to administer. Riskiest for the company, because commission is owed before any money arrives.
• SHIPPED or DELIVERED. A reasonable middle ground for physical goods.
• INVOICED. Common, and easy to evidence from your billing system.
• COLLECTED, on receipt of customer payment. Best for company cash flow and the most common source of disputes, because the salesperson's pay now depends on the company's own collection effort. If you use it, pair it with a good-faith collection covenant, as this template does.
• Whichever you choose, name a measurement date, and make sure your CRM records that event, because the contract and the system need to agree.
• California uses slightly different language, describing a commission as earned when the employee has perfected the right to payment. The analysis is the same: what does the contract require to have happened?

Employee or independent contractor, and why it is the biggest risk here

This single choice determines which statutes apply, whether overtime is owed, who pays payroll taxes, and whether a wage claim or a sales representative claim is available. What the contract calls the relationship carries very little weight on its own. Two tests matter most. For federal wage and hour purposes, the Department of Labor's 2024 rule, which applies a six factor economic reality test with no single factor controlling, is still the regulation on the books and still governs private lawsuits under the Fair Labor Standards Act. The change has been to enforcement posture. In May 2025 the Wage and Hour Division announced it would stop applying that rule in its own investigations, and in February 2026 the Department proposed replacing it with a modified version of the earlier 2021 rule, which gives controlling weight to two core factors, control and opportunity for profit or loss. That proposal has not been finalised. Anyone telling you the test has already changed is ahead of the facts. Separately, the IRS applies its own common law test across three categories, behavioural control, financial control, and the type of relationship, and says plainly that no single factor decides it. Form SS-8 is the route to an official determination.

• California applies the ABC test, under which a worker is an employee unless the hiring entity shows all three of: freedom from control in contract and in fact; work performed outside the usual course of the hiring entity's business; and the worker being customarily engaged in an independently established trade of the same nature.
• Prong B is what catches sales roles, and it is worth reading twice. If your business sells software and your contractor salesperson sells that software, the work is squarely inside your usual course of business and prong B fails on its face.
• California does have exemptions that can apply. The business-to-business exemption requires every one of a long list of conditions, including a written contract, a separate business location, and the contractor advertising and holding itself out to the public. There is also a narrow direct sales salesperson exemption, which depends on substantially all remuneration being tied to sales output rather than hours, plus a written contract on tax treatment.
• The professional services exemption does NOT cover salespeople. Its enumerated categories cover marketing, HR administration, graphic design, photography, freelance writing and similar roles. Sales is not on the list, and this is a common and expensive misreading.
• The cost of getting it wrong is not theoretical: unpaid overtime, liquidated damages, payroll tax exposure, and the loss of whichever statutory scheme you thought you were in.
• Status as of 1 September 2026. This area is moving, and a final federal rule would change the first paragraph above.

State commission statutes, and the ones with real teeth

This is where the money is, and it is almost entirely absent from other free template pages. Two separate families of statute exist and they are constantly confused. Employee wage statutes apply when the salesperson is an employee. Independent sales representative statutes apply when the rep is a contractor soliciting orders, usually wholesale, for a principal. Most sales representative statutes expressly exclude employees. Michigan is the notable exception that covers both.

• CALIFORNIA, employees: a commission arrangement for services rendered in California must be in writing and must set out how commission is computed and paid. The employer must give the employee a signed copy and obtain a signed receipt. Where a contract expires and the parties keep working, its terms are presumed to continue until superseded or employment ends. Note the reach: it turns on services rendered in California, so an out-of-state employer with a California-based rep is caught. The section itself sets out no damages figure, so anyone telling you it imposes treble damages has misread it. That is not the same as there being no consequence: enforcement runs through California's general wage machinery, and a missing or defective commission agreement tends to travel with other wage claims rather than standing alone.
• NEW YORK, employees: the agreed terms must be in writing, signed by both parties, kept for at least three years, and must state how commission is calculated, the frequency of reconciliation if there is a recoverable draw, and what happens on termination. The sting is the presumption: if the employer cannot produce the written terms on request, the terms the salesperson describes are presumed to be the agreed terms. Commissions are wages in New York, and unpaid wage claims can carry liquidated damages of 100% of the amount due.
• MASSACHUSETTS, employees: commissions that are definitely determined and due and payable fall under the Wage Act, and the remedy is mandatory treble damages plus attorney's fees. The state's highest court confirmed in Reuter v. City of Methuen (2022) that an employer who pays late owes treble the full late wages rather than treble the interest, with no good faith defence. A five thousand dollar commission paid one day late is a fifteen thousand dollar exposure plus the other side's legal costs.
• ILLINOIS, independent reps only: commissions due at termination must be paid within 13 days, and a court may award exemplary damages of up to three times the commissions owed, plus reasonable attorney's fees and costs.
• TEXAS, independent reps soliciting wholesale orders: the contract must be in writing or in a computer-based medium and must state how commission is computed and paid. Commissions are due within 30 working days of termination, and the statute provides for three times the unpaid commission plus fees and costs.
• MARYLAND, wholesale sales representatives: payment within 45 days, up to three times the commissions owed, plus counsel fees and court costs. Note the procedural trap: the statute requires ten days prior written notice of intent to sue.
• MICHIGAN, both employees and contractors: 45 days, with an additional amount equal to twice the commissions due for an intentional failure to pay, capped at $100,000, plus fees and costs to the prevailing party.
• Many other states have similar sales representative statutes. Check yours, and check which family it belongs to before relying on it.

Draws, chargebacks and clawbacks

These three get lumped together and they are different things with different legal treatment. A draw is money advanced before commission is earned. A chargeback reverses credit for a deal that has not yet been paid out. A clawback recovers money already in the salesperson's hands. The last of those is where wage law bites, because taking money back from someone's pay is a deduction, and deductions are regulated.

• RECOVERABLE DRAW: an advance, repaid out of future commission, with shortfalls carrying forward. NON-RECOVERABLE DRAW: a guaranteed floor that is not repaid. Say which one you mean, and state the reconciliation cadence. New York's statute expressly requires the written agreement to state the reconciliation frequency where there is a recoverable draw.
• A negative draw balance on departure is genuinely unsettled territory. An express written promise to repay may give the company a contract claim. Whether it can simply be deducted from the final paycheck is a different question, and in California the labour commissioner's position is that a lump sum deduction of the balance from the final check is not allowed.
• In California an already-earned commission is a wage, and the Labor Code makes it unlawful for an employer to collect back from an employee any part of wages already paid. A clawback drafted as an absolute right runs straight into that.
• Deductions generally require either legal authorisation or the employee's express written authorisation, depending on the state. Build the authorisation into the process rather than assuming the contract alone is enough.
• Draft chargebacks with named grounds, a defined lookback window, and a stated mechanism. Avoid open-ended adjustment rights.
• Forfeiture clauses, meaning no commission unless still employed on the payment date, are jurisdiction dependent and genuinely contested. In states that treat earned commissions as wages they are on shaky ground. Do not assume a national answer either way.

Overtime: inside sales, outside sales, and a widely missed problem

If the salesperson is an employee, commission does not by itself remove the right to overtime. Two federal exemptions are relevant and neither is as broad as people assume. The outside sales exemption requires that the employee's primary duty is making sales, and that they are customarily and regularly engaged away from the employer's place of business in doing it. There is a genuinely useful detail here that is rarely mentioned: the salary requirements do not apply to outside sales employees at all, so a pure commission outside salesperson can be exempt. Incidental work such as writing sales reports, updating a catalogue, planning itineraries and attending sales conferences still counts as exempt work.

• Inside salespeople generally fail the outside sales exemption, because they are not customarily and regularly away from the employer's premises.
• Their route is the retail or service commission exemption, which requires three things together: the employee works for a retail or service establishment, their regular rate exceeds one and a half times the applicable minimum wage, and more than half their compensation over a representative period of at least one month comes from commissions.
• The first condition is the one people forget, and it is contested. Many business to business companies, software firms among them, have historically been treated as lacking a retail concept and so outside 7(i) altogether. That categorical position is weaker than it was, for the reason in the last bullet below, but it has not reversed. Treat 7(i) as something to establish on your facts rather than assume.
• The consequence is expensive and near-universally missed: a non-exempt inside salesperson earns overtime, and their commissions have to be included in the regular rate used to calculate it.
• One thing that did change: in 2020 the Department withdrew the old partial lists of industries that lacked a retail concept, so businesses formerly treated as categorically ineligible can now at least make the argument. Older articles citing those lists as live are out of date.

House accounts, split credit and changing the plan

These three cause more day to day friction than anything else in sales compensation, and they are absent from essentially every free template. A house account is an account the company keeps for itself, carrying no commission. Reclassification is where the trouble starts. An account becomes a house account halfway through a deal the rep has been working for six months. Split credit is the same problem between two reps. And plan changes are the same problem across time.

• Define house accounts up front, by name or by rule, and say who has authority to designate one.
• Make reclassification prospective only, and expressly protect any transaction already in progress. This template does both.
• For splits, use a credit hierarchy rather than arguing case by case: sourced by, closed by, expanded by, renewed by, with percentages that total 100%.
• Name the person who decides a contested split, and require the decision to be recorded in writing to everyone credited.
• Keep the plan mechanics in a replaceable exhibit, so the annual reset is a new schedule rather than a renegotiation.
• Make plan changes prospective and grandfather in-flight deals. Retroactive change is what most commission litigation is actually about.
• If there is a cap, say so in writing before the year begins. A cap discovered after a monster deal is a lawsuit waiting to happen.

A note on non-competes

This template deliberately contains no non-compete, and includes only a confidentiality obligation and a caution. The reason is that the position is widely misunderstood. The Federal Trade Commission's rule banning most non-competes was published in 2024 but was set aside by a federal court before it took effect, and it never entered the Code of Federal Regulations. The Commission dismissed its appeal in September 2025 and has since pursued individual employers case by case under its general unfair methods of competition authority instead, including a proposed consent order against a national services company in April 2026. No federal ban is in force, and none ever took effect. Non-competes are governed by state law, and that law varies from routine enforceability through to outright prohibition in several states. If you want a post-termination restriction, draft it against the law of your governing-law state rather than bolting on a clause from a template.

Common mistakes to avoid

The same handful of drafting failures produce most commission disputes.

• Never defining the earning event, so the procuring cause doctrine fills the gap and the departing rep collects on the pipeline.
• Calling an employee a contractor to avoid overtime and payroll tax, then failing the applicable test.
• Having no written agreement at all in a state that requires one, which in New York creates a presumption in the salesperson's favour.
• Giving the salesperson a copy but never obtaining the signed receipt some states require.
• Assuming an inside sales team is overtime exempt when it meets neither federal exemption.
• Drafting forfeiture as an absolute in a state that treats earned commissions as wages.
• Clawing money back by deducting it from a paycheck without checking the state's deduction rules.
• Running a recoverable draw with no written repayment agreement, then trying to take the balance out of the final check.
• Reserving unlimited discretion to change the plan retroactively.
• Leaving house accounts and split credit undefined until the first contested deal.
• Applying chargebacks by surprise, or on grounds the agreement never listed.
• Missing a state payment deadline, where the deadlines range from five business days to forty-five and the damages from double to triple.
• Using one template for both an employee and a 1099 rep, when they trigger entirely different statutes.