Commission Agreement Template for Sales Reps (2026)

A commission agreement template sets out how a sales rep earns and is paid commission: the rate, which sales qualify, exactly when a commission is earned, when it is paid, how returns and non-payments are clawed back, and what happens after the relationship ends. A clear, signed agreement is legally required for commissioned employees in some states, such as California and New York, and it is the best protection against disputes everywhere else.

Commission disputes usually start with an ambiguous sentence, such as "5% on all sales," when nobody defined whether that meant signed contracts, invoiced amounts or cash received. Below is a practical template you can adapt for employees or independent reps, the clauses to include, state rules to check, and how to pay commissions with clean records. This is general information, not legal advice; have an employment attorney review your final agreement, especially for employees.

What a commission agreement should include

Clause	What to define	Why it matters
Parties and status	Employee or independent contractor	Determines wage laws, taxes and forms
Commission rate	Percentage, tiers, accelerators, flat fees per deal	The core economics
Commission base	Gross sale, net of discounts, gross margin, or cash collected	Biggest source of disputes
Earned trigger	Signed contract, shipment, invoice or customer payment	Decides who bears non-payment risk
Payment timing	Monthly, with a cut-off date and statement	Wage law compliance and trust
Draws	Amount, recoverable or not, reconciliation	Avoids unexpected debts
Chargebacks	Returns, cancellations, unpaid invoices	Protects margin, must follow state law
Territory and accounts	Exclusive regions, house accounts, splits	Prevents rep-versus-rep conflict
Changes to plan	Notice period, written amendments, prospective only	Required in writing in some states
Termination	Commissions on pending and post-termination deals	The most litigated clause

Commission agreement template (adapt and review)

Copy this structure into your document and fill in the brackets.

1. Parties. This Commission Agreement is between [Company name, address] ("Company") and [Rep name, address] ("Rep"), effective [date].
2. Relationship. Rep is engaged as an [employee / independent contractor]. [If contractor: Rep controls the manner and means of performing sales activities, provides their own tools and is responsible for their own taxes.]
3. Products and territory. Rep will sell [products/services] in [territory or account list]. House accounts excluded from commission: [list].
4. Commission rate. Rep earns [X]% of Net Revenue on Qualified Sales. Tier: [Y]% on Net Revenue above $[amount] per [quarter/year].
5. Definitions. "Net Revenue" means the amount invoiced to the customer, excluding sales tax, shipping, discounts, credits and refunds. "Qualified Sale" means a sale to a customer in Rep's territory, on Company's approved pricing, accepted by Company in writing.
6. When earned. Commission is earned when [the customer pays the invoice in full / the order ships]. If a customer pays in installments, commission is earned proportionally on each payment received.
7. Payment. Company pays earned commissions by the [15th] of the month following the month earned, with a statement showing each sale, Net Revenue, rate and commission.
8. Draw (optional). Company advances $[amount] per month as a [recoverable / non-recoverable] draw against commissions, reconciled [monthly/quarterly].
9. Chargebacks. If a customer returns goods, cancels within [period] or the invoice is written off as uncollectible within [period], commission previously paid on that amount will be deducted from future commissions, to the extent permitted by law.
10. Splits. When more than one rep contributes to a sale, the commission is split as [rule], decided by [role] in writing.
11. Changes. Company may change this plan for future sales with [30] days' written notice. Changes do not affect commissions already earned.
12. Termination. On termination, Rep will be paid commissions on Qualified Sales [booked/invoiced] before the termination date and earned within [90] days after it. [State any further rules.] Final payments will comply with applicable state law.
13. Records and disputes. Rep may review commission records for their sales. Disputes must be raised in writing within [60] days of a statement.
14. Governing law and signatures. This Agreement is governed by the laws of [state]. Signed by both parties, and Rep acknowledges receipt of a signed copy.

State laws that affect commission agreements

• California: Labor Code section 2751 requires employers to give employees paid commissions for work in California a signed written contract explaining how commissions are calculated and paid, and to get a signed acknowledgment of receipt, as explained in McGuireWoods' summary of the law. Changes should be made in a written amendment or new agreement.
• New York: Labor Law section 191 requires a written agreement for commissioned salespersons, signed by both parties and kept for three years, describing how wages, salary, draws and commissions are calculated and how earned pay is handled on termination. If the employer does not comply, the salesperson's account of the terms can be presumed accurate, according to Crowell & Moring.
• Independent sales representative laws: many states have statutes requiring written contracts with independent reps and prompt payment of commissions after termination, sometimes with multiple damages for late payment. Check the law in the rep's state.
• Final pay laws: for employees, earned commissions may be due with or soon after the final paycheck; see our new guide to final paycheck laws by state.

Employee vs independent contractor sales reps

Calling a rep a contractor in the agreement does not make them one. If you set their hours, require them to follow your sales process, provide leads and tools and treat them like staff, they are likely employees. Our W-2 vs 1099 guide explains the tests, and our new guide to worker misclassification penalties covers the cost of getting it wrong.

• Employees: commissions are wages. Withhold income tax and payroll taxes; commissions are often treated as supplemental wages, explained in our bonus tax rate guide. Minimum wage and overtime rules can apply unless an exemption fits.
• Independent reps: collect a W-9, pay against their invoice, and file Form 1099-NEC if you pay them $2,000 or more in 2026 (the threshold rose from $600 under the One Big Beautiful Bill Act); see the 2026 1099-NEC threshold and our guide to W-9 and 1099 for contractors.

Worked example: a monthly commission statement (illustrative)

An independent rep earns 8% of Net Revenue, earned when the customer pays, and 10% on Net Revenue above $50,000 in a quarter. In September:

Customer	Invoiced	Paid in Sept	Rate	Commission
Acme Dental	$12,000	$12,000	8%	$960.00
Northside Clinic	$18,500	$9,250 (first installment)	8%	$740.00
Lakeview Labs	$7,400	$0 (unpaid)	-	$0.00
Chargeback: July return	-	-$2,000	8%	-$160.00
Total commission for September				$1,540.00

The rep invoices the company $1,540 with this statement attached. Lakeview's commission will be earned when it pays. Because the rule ties commission to cash received, the company never pays commission on revenue it does not collect. Our sales commission invoice template shows the layout for the rep's invoice, and real estate agents can use the real estate commission invoice guide.

Choosing a commission structure

The template works with most structures, but pick one that matches the sales cycle:

• Straight commission: the rep earns only commission. Common for independent reps who carry several product lines.
• Base plus commission: a salary or hourly base with a lower commission rate. Common for employees and long sales cycles.
• Tiered or accelerated: higher rates above a quota, which rewards top performers.
• Gross margin commission: a percentage of profit rather than revenue, which discourages heavy discounting.
• Residual commission: a smaller ongoing percentage on recurring revenue, such as subscriptions, for as long as the customer renews.

Whatever you choose, run three test scenarios (a slow month, an average month and a record month) through the formula before signing, and make sure both sides agree on the results.

Common commission agreement mistakes

• Undefined base. "5% of sales" invites arguments over discounts, tax, shipping and refunds.
• No earned trigger. Without one, reps may be owed commission on deals customers never pay.
• Silent on termination. The most common lawsuit is over deals that close after a rep leaves.
• Unlimited chargebacks. Clawbacks without a time limit feel unfair and may violate state wage deduction rules for employees.
• Changing the plan verbally. Put every change in writing, signed, and apply it only to future sales.
• Bundling restrictive covenants carelessly. Non-solicit and non-compete clauses face growing restrictions; see our guide to non-compete agreements.

What to do if a commission dispute arises

Start with records. Pull the agreement, the commission statements, the invoices and customer payment records for the disputed deals. Most disputes are resolved by showing exactly when each invoice was paid and how the base was calculated, which is why monthly statements matter so much. If the agreement is ambiguous, many states read ambiguities against the party that drafted it, usually the company, so a fair settlement is often cheaper than litigation. Then fix the template so the issue cannot recur, and send the revised version to every rep for signature so everyone works from the same terms.

Independent reps can bill their commissions with our free invoice generator: list each paid deal, the rate and any chargebacks, then download a PDF invoice with no sign-up.