commission-agreement-acknowledgement-form.doc

8/19/2019 Commission-Agreement-Acknowledgement-Form.doc

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Commission Agreement Guide and Template

IntroductionPaying sales commissions has always been a tricky part of being an employer. With recent changes in current law, and theaggressiveness of attorneys and litigious employees, it has never been more important to create a bulletproof sales commissionagreement between you and your employees.

The What, Why, and HowThe key to a solid and effective sales agreement is to draft a clear and precise description of the duties and expectationsassociated with each aspect of the sale of your product or service. A sales agreement must outline the terms of the sale, themethod by which the commission is calculated, any selling limitations, the legal relationship between you and the employee, anyother requirements, and any other expectations you may have. Additionally, performance goals and measurements should bedescribed so that everyone knows what is expected in order to demonstrate minimum, good and exceptional performanceailure to word the contract correctly can result in lost revenue and possibly even legal issues. A! "#$%, passed in &'"" andeffective (anuary ", &'"#, has made it a requirement that business owners implement sales commission agreements. )t isimperative, now more than ever, that you develop highly detailed documents and leave no room for confusion. We*ve outlined thesteps of creating a detailed agreement below+

Mandatory 12-tep Commission Agreement !e"elopment

1# $arties to the AgreementAny agreement between two or more parties must clearly define the parties involved. egal contracts may start out with legal wording such as -whereas and -hereinafter, but our purpose is to create a basic, plain/language agreement between anemployer and an employee that will withstand any legal challenge without the expense of an attorney.

2# Terms o% the Agreement

0ircumstances change, so we certainly don*t want to have an -open/ended agreement with our sales people. )t is best toinclude an expiration date that occurs at a specific calendar point in the year, or on the employee*s anniversary date. Theagreement should contain a clause for non/renewal of the agreement 1usually termination2 based on lack of performance,breach of the contract, misconduct, or even changing business conditions. A clear and concise mention of -at/willemployment is important at this point as well, but we will include a more detailed clause later in this guide.

&# $osition and Classi%ication)t is good to provide a title for the position to be held and describe how that position is classified in regards to pay and exempt ornon/exempt status. The title may be as simple as -3ales Associate or more complex like -3enior !usiness 0onsultant. )t iscritical to properly classify the position as exempt or non/exempt. To be exempt from minimum wage and overtime restrictions, asalesperson must work outside the office at least 4'5 of the time and be primarily engaged in the selling of a product or service)f your salesperson is also involved in incidental delivery, installation, or activation of your product or service for more than 4'5 ofhis6her work time, the position may not qualify for exempt status. An inside salesperson may be classified as exempt only ifhe6she makes at least ".4 times minimum wage, and his6her earnings from commissions make up at least 4'5 of his6her total

earnings each workweek.

'# !uties and (esponsi)ilities7ou may have very specific ideas about how your sales people should perform their duties and responsibilities or you may be abit more -loose in your expectations. Whatever your style, be sure to tell the employee specifically what activity you want him6her to focus on, and be sure to include activity goals, ob8ectives, and benchmarks, if applicable. )f you want the salesperson tosee 4' new prospects per week and close five new sales, then detail a plan for that. 9epending on the complexity of the sale andthe typical sales cycle, you may want to allow some ramp/up time during the first #', %', or $' days. 7ou should also include thespecific days and hours you expect the employee to work and to whom the employee will report.

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*# Acti"ity (eporting (e+uirementsAlthough it*s always best to focus primarily on results with professional salespeople, your particular industry 1and yourexperience2 may require that activity be at a certain level to produce the desired results. :mployers should require weekly,monthly, and quarterly activity reports to keep salespeople accountable and to facilitate monitoring the salesperson*seffectiveness. This is especially critical in the first #', %', or $' days, depending upon your sales cycle.

# .pected ales (esults

This section of your agreement should carefully and thoughtfully define your sales expectations, both short/term and long/term.;f course, for most sales, a ramp/up time is necessary, but a gradual increase in the performance targets should be defined.There can be multiple levels of expected sales, if appropriate, including minimum effective levels, ideal levels, and exceptionalevels. 7ou can incentivi<e your salespeople by increasing the commission paid at higher sales levels. This multi/tiered approachallows you to establish performance parameters that will trigger a possible probationary period if a salesperson continually hoversat6near the minimum effective levels. This is a critical aspect of managing performance and defining and6or removing ineffectivesalespeople as quickly as possible.

/# Compensation tructure7ou may want to treat this section of the agreement as an addendum with a signature line of its own so that any changes to thecompensation structure will not impact the primary 3ales 0ommission Agreement. The compensation section should detail any

base salary, the commission structure, residuals, how commission is paid, when it is paid, and any other factors that may affectthe commission calculations, like the cost of sales or other overhead expenses. )n the interest of simplicity, we have kept thecompensation structure as part of the overall 3ales 0ommission Agreement.This is critical= the method of calculating the commission must be detailed in order to comply with A! "#$% which took effect on(anuary ", &'"#. )f the commission is a percentage of profit, or a percentage of gross sales minus cost of goods sold, that mustbe clear. )f there is more than one tier of commission based on sales levels, this should also be detailed. )n short, don*t leave anyambiguity in your commission plan.

0# Commission ContingenciesWe all know that things don*t always work out as planned in the business world. !ut, in sales, when things don*t work out, it*ssure to cost you money. )t*s important that you have a contingency plan for when things go wrong to enable you to take swiftaction that will prevent overpaid commissions.

Customer Payment / 7ou can withhold commissions until the sale is complete and the customer has paid in full. )f the customercancels a sale before payment is made, or if the payment is not cleared by the bank, you are not obligated to pay commission toyour salespeople. 7ou can require that the salesperson assist you in collecting the money, as it is in his6her best interest as well.!ut, be careful not to turn your salespeople into collection agents= their time may be better spent finding new sales.Commission Forfeitures / )n cases where commissions are paid out before the sale is completely paid for by the customer, youmay find it necessary to request repayment of any commissions paid out. or instance, in life insurance, the salesperson mayreceive "4'5 commission before the policy has been paid. )f the customer cancels the policy prior to full payment, thesalesperson must pay that commission back out of future commissions. !e sure to carefully detail this eventuality in thecontingencies section of your agreement.Employee Termination - )f an employee is terminated, obviously his6her future commissions will end upon termination. )f anemployee leaves or is terminated after a sale has been completed, you will be obligated to pay that commission according to your

standard policy. And if a sale is nearly complete and an employee is terminated, you may still be on the hook for payment. )t isbest to spell out certain completion milestones that must be met before a sale is considered payable after termination.There are many other contingencies possible, and each business scenario is different. 9o your best to think of the variousproblems that may occur, and then implement a plan to address those problems. Attorneys are very good at find any loopholesyou may have in your agreement.

# .pense (eim)ursementAny expense an employee incurs in the course of doing business for you is reimbursable as a non/taxable payment. Thisincludes mileage, entertainment, office supplies, parking, tolls, and more. 7ou may certainly restrict discretionary spending onthings like meals and entertainment, but mandatory expenses like mileage must be reimbursed. 3etting a level of mileage

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reimbursement according to )>3 rules, requesting detailed mileage logs, and ensuring that an employee*s activity report matchesthe mileage report is a great way to remain compliant and monitor activity. ?ake sure to require that mileage log forms be turnedin along with monthly activity reports.

1# $olicies and $rocedures7ou may want to include specific procedures that must be followed by salespeople to facilitate a smooth operation, help invoicesget paid quickly, assist production with prompt fulfillment of the sale, and any other issues of importance to your operation. This

will help to ensure that performance meets your expectations and it will help to expose problem areas with a particularsalesperson that need correction or training. 3alespeople tend to focus only on the sale, which is good most of the time= butmaking sure they are a vital part of the team, and a strong link in the chain of service or production, is 8ust as important as thesale itself.

11# Con%identiality, 3on-!isclosure, and 3on-olicitationA percentage of salespeople tend to be transient and may not have your 0ompany*s long/term best interests at heart. @ivingthem free access to your confidential information could prove to be disastrous. Protecting that information is critical and can beaccomplished with a solid 0onfidentiality, on/9isclosure, and on/3olicitation policy.Although you cannot force employees to sign a non/compete clause, especially in 0alifornia, you can restrict their ability to doanything with your information that can harm you. 1There may be certain circumstances where geographical or territorial non/

competes are valid, but that*s another topic= be sure to seek professional advice before you include a non/compete clause.This section of your agreement could also be in a separate addendum to be sure any changes to one section won*t affect theother, and you can use this section for your non/commission employees.

12# At-Will-mployment:very employee contract should clearly point out that employees are engaged under the at/will/employment clause in 0aliforniaabor aw. At any time, you or the employee may voluntarily terminate the employment relationship. The agreement shouldinclude a paragraph that clearly states that the at/will employment status of the employee is in no way diluted or overridden byany part of the sales commission agreement.

Wrapping it All 4pThe 3ales 0ommission Agreement can be wrapped up into one long agreement or, as we have suggested, broken into three

separate and distinct parts, each with its own signature line. :very salesperson should have a personali<ed sales agreement, bube careful if there are differences in payment terms or other requirements between employees who hold the same or substantiallythe same position. )n the beginning of this guide, we suggested a clear position title= this is important for many reasons, butprimarily so that each employee may be assigned different duties, payment plans, sales targets, and reporting requirements, ifnecessary. A 3ales Associate may be required to provide weekly reports, whereas a 3enior 3ales Associate may only be requiredto submit monthly reports. !e sure that you do not discriminate between employees in the same classification.

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Guide to Creating a 5Commission Agreement6

Below typeface shown in ALL CAPS should be customied for your wor!place" Additional changes should be made to reflect the policies and procedures in your wor!place"

3A:3 A33;0)AT: 0;??)33); A@>::?:T

1:BA?P:2 This 0ommission Agreement 1Agreement2 is entered into this day, ?;TC, 9A7, 7:A>, between 0;?PA7 A?:10ompany2 and :?P;7:: A?: 1:mployee2. The purpose of this Agreement is to establish a 0ommission Plan and otheparameters of employment where :mployee can be successful and rewarded for his6her efforts in achieving individual salesgoals and the 0ompany can gain value from his6her employment.

Terms o% the Agreement1:BA?P:2 This Agreement shall continue in effect from the above date until terminated by 0ompany. The 0ompany mayterminate this Agreement with or without notice or cause. othing in this Agreement shall guarantee employment or supersedethe at/will employment laws of the 3tate of 0alifornia.

$osition and mployment Classi%ication

1:BA?P:2 7our title will be 3A:3 A33;0)AT: and you will report directly to 3DP:>E)3;>. 7ou are considered an exemptemployee and not sub8ect to minimum wage or overtime regulations. 7ou are expected to be in the field at least 4'5 of your working time, but F45 is ideal as the 0ompany has found that significant time in the field relates to success in sales.

!uties and (esponsi)ilities1:BA?P:2 :mployee is expected to make every effort to optimi<e his6her sales performance and engage in activity on a dailybasis that will facilitate this goal. >equired duties are as follows+

• 3cheduling appointments and meeting existing customers in order to identify and qualify potential prospects and present

current product offers.

• :ffective planning to conduct sales presentations by meeting customers physically on daily basis.

• Provide professional demonstrations or presentations of 0ompany products and services while onsite.• iaising between the 0ompany and the customers for up/to/date pricing, service, and latest product/release launches.

• )dentifying and qualifying prospective customers through research, networking, and cold/calling.

• 0ontinuously updating all prospects on 0ompany product modifications, changes, and enhancements.

• :nhancing up/to/date knowledge on new products, procedures, services, and tools by attending departmental and training

meetings.

• ?aintaining professionalism, diplomacy, sensitivity, and tact to portray the 0ompany in a positive manner.

• :ffectively attending conferences and trade shows, where applicable.

• Dsing marketing data to maximi<e sales effectiveness and efficiency by using relevant sales management tools.

• Preparing reports for sales and marketing and maintaining accurate expense accounts.

•

Dpdating and maintaining customer account records, including contact names and numbers for future sales.• Providing product quotes to customers as needed.

• Aggressively following up on business opportunities by 9:):.

Acti"ity (eporting (e+uirements1:BA?P:2 :mployee shall complete a 3ales Activity >eport each week by the end of the day on riday and deliver it to the3A:3 ?AA@:> via email or in person. 3ales >eports must be turned in no later than the fifth of the month for the previousmonth. Additionally, :mployee will provide a monthly Travel and :xpense Activity >eport no later than the fifth of the month forthe previous month.

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.pected ales (esults 1:BA?P:2 :mployee is expected to begin an aggressive effort to maximi<e initial sales activity directly after a TW;/W::Gtraining period. :mployee is expected to reach ?inimal 3ales Targets within #'/H4 days and Acceptable 3ales Targets within $'days. Activity and performance will be evaluated on a weekly basis during the first $' days.

?inimum 3ales Targetsirst #' days+ I&4' in new monthly revenue

#' J %' days+ I4'' in new monthly revenue%' J $' days+ I",''' in new monthly revenue$' days J % months+ I&,''' in new monthly revenueAcceptable 3ales Targetsirst #' days+ I&4' in new monthly revenue#' J %' days+ IF4' in new monthly revenue%' J $' days+ I",4'' in new monthly revenue$' days J % months+ I&,4'' in new monthly revenue:xceptional 3ales Targetsirst #' days+ I4'' in new monthly revenue#' J %' days+ I",4'' in new monthly revenue

%' J $' days+ I&,''' in new monthly revenue$' days J % months I #''' in new monthly revenue?inimum and Acceptable 3ales Targets are intended to describe what is the minimal expectation of the 0ompany and should nobe misconstrued as the ultimate goal of the :mployee. :mployee should seek to excel in his6her sales activity and push to attainthe highest level of sales possible. Cowever, :mployee is not guaranteed employment by meeting any level of sales.

Compensation tructure 1:BA?P:27ase alary8 IH'' per weekCommissions8 igures are based on new revenue sold and paid each calendar month.Tier "+ #5 of the gross revenue of all new monthly sales above I",'''Tier &+ 45 additional commission on the gross revenue of all new monthly sales above I&,'''Tier #+ "'5 additional commission on the gross revenue of all new monthly sales above I#,'''

(esiduals8 &5 residual commission on cumulative revenue given each month acceptable levels of new sales is attained.>esiduals are paid on the previous month*s total account revenue.Monthly ales $eriod8 All commissions are paid on sales completed and paid by the last day of the previous month.ales (eports8 3ales and Activity reports for the month must be submitted by the fifth of each month for the previous monthin order to receive commissions.Commission $ayments8 0ommissions are paid the fifteenth of the month for the previous month*s earnings, contingentupon satisfaction of all other requirements of this Agreement.

Commission Contingencies 1:BA?P:2". :mployee must meet acceptable levels of new sales in order to receive residual commissions and submit all required reports in

a timely manner.

&. )f 0ompany terminates :mployee*s employment, he6she shall receive commissions on all completed sales up to the date oftermination, residuals for the previous month, and prorated commissions for the month in which the termination occurred.#. :mployee shall forfeit any previously paid residuals or commissions if 0ompany does not receive the associated customer

payment or the customer otherwise defaults or terminates a contract prior to the end of the month without complete payment.orfeited commissions shall be deducted from future commissions.

.pense (eim)ursement1:BA?P:2 :mployee shall be reimbursed for expenses related to travel and mileage at the current )>3 rate for travel from theoffice to a sales appointment, between sales appointments, and from a sales appointment back to the office at the end of the day)f :mployee will travel home after the last appointment, mileage will be reimbursed for miles that exceed the distance between

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his6her home and the office. The 0ompany shall provide a mobile device that :mployee is to maintain in good condition and usesolely for business purposes. :mployee is responsible for any associated costs for personal use of the 0ompany mobile device.Dpon termination of employment in this position or upon request by 0ompany, :mployee agrees to return all 0ompany/ownedequipment and related documentation6user manuals to 0ompany in good condition. :mployee shall submit a monthly Travel and:xpense Activity >eport no later than the fifth of each month for the previous month*s activity. 0ompany shall authori<eentertainment and meal expenses only upon prior approval and submittal of receipts with the monthly report.

$olicies and $rocedures 1:BA?P:2 :mployee shall coordinate all sales activities with the 3ervice 9epartment to accomplish seamless contact with thecustomer. :mployee must submit paperwork for each sale to the 3ervice 9epartment by the end of each day via email or inperson. :mployee also agrees to adhere to any written or verbal policies and procedures, including those set forth in the0ompany*s :mployee Candbook.

At-Will mployment 1:BA?P:2 7our employment with the 0ompany remains at/will. While the 0ompany has every hope that this employmentrelationship will be mutually beneficial and rewarding for years to come, both :mployee and the 0ompany retain the right toterminate the employment relationship at any time, with or without notice or cause. Please note that no individual has theauthority to make any contrary agreement or representation other than the President of the 0ompany in writing.

Con%identiality and 3on-!isclosure7ou agree to abide by the attached :?P;7:: 0;)9:T)A)T7 A9 ;/9)30;3D>:6;/3;)0)TAT);A@>::?:T, which you will be required to sign before starting your employment with the 0ompany.

ntirety o% Agreement1:BA?P:2 This Agreement supersedes all other agreements, either oral or written, between the parties to this Agreement, withrespect to the obligations contained herein and contains all of the covenants and agreements between the parties with respect tosuch agreement.

9aw Go"erning Agreement1:BA?P:2 This Agreement shall be governed by, and construed in accordance with, the laws of the 3tate of 0alifornia.

To confirm that you agree to the terms and conditions as stated in this Agreement, please sign and date the enclosed copy of thisAgreement.

#$ %A&E 'F E&PL'(EE$ hereby accept the terms of the position of SALES ASS'C#ATE for the Company on the date # indicatebelow" &y signature below certifies my understanding and acceptance of the terms and conditions of my employment and thecommission agreement"

Employee)s name plus signature$ address$ and date re*uired"Employer)s company name$ authoried company representati+e)s name$ signature$ and date re*uired"

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