How to pay employee commissions correctly

A commission is additional pay that an employee receives for providing a service or selling a product.

Commissions can give the team a clear way to be rewarded for a service or sale. The rules need to be agreed in advance and understood in the same way by everyone.

What should be clear from the start?

A commission is usually set as a fixed amount or a percentage of the sale. The most important points to clarify are what it is calculated on, when it accrues and when it is paid.

We all know how hard it is to find good, motivated employees. Clear commission rules help connect pay to the work performed and keep expectations consistent across the team.

The main purpose of using commissions is to create more flexible pay policies and increase employee engagement.

Types of employee commissions

Commission payments have been used for many years and by many businesses. Here are the two main types:

Fixed-amount employee commissions

In this model, you pay a fixed amount when an employee performs a specified service.

For example, the employee receives €5 for performing a particular service.

Employee commissions as a percentage of sales

In this model, the employee receives a set percentage of the price of a specified service or sale.

For example, the employee receives 10% of a service’s price: for a €30 service, the commission is €3.

Tips for introducing an employee commission plan

Have you decided to create a commission plan for your business? There are several steps to follow to make sure the calculations are right, your team is motivated and your company gets the results you want.

1. Decide on the type of commission. As discussed, there are two main types of commission that form a proportion of fixed pay. The first step in agreeing a commission plan with an employee is to define their base salary and the variable amount — the commission. For example: the base salary could be N euros plus up to 5% commission on services performed by the employee. The right percentage depends on the professional’s skills, their ability to persuade the client and how far the product “sells itself”. If clients already seek out the product or service, the percentage need not be high.
2. Agree on a commission payment date. You can pay commissions on the same day, weekly, monthly, once a certain amount has accrued or on another schedule that suits you. Consider the employee’s preferences too, otherwise they could lose motivation.
3. Calculate the employee’s monthly sales or completed services. This is a key measure. Reservation.Studio Business automatically calculates accrued employee commissions when a service is completed or paid for, helping you with these calculations.
4. Train your employees. Make time for your employees and provide high-quality sales training. You are well placed to do this because you know your business and clients. Observe staff during conversations to see where they need to improve. A trained and motivated employee will sell and close sales more successfully. Teach them how to talk with clients and offer new services or products. For example, your nail technician could persuade a client to choose gel polish instead of regular polish because they have built trust.
5. Invest in sales tools and software that automate commissions. Employees often lose motivation when they feel held back by outdated or inadequate tools. Losing a list of amounts earned from completed services would be demotivating for anyone.

Calculating commissions often takes time, especially when services, sales and rules are tracked in separate spreadsheets. That is why having one source of data helps.

A quick and easy tool for calculating commissions

Reservation.Studio has a built-in feature for automatically calculating employee commissions.

1. Set up. Choose who receives the commission — the whole team or a particular employee — and set a rule for all services or for each service individually.
2. Accrue. After each completed service and payment, employees build up a balance that can be paid at any time. You can also subsequently exclude a particular commission from the total balance.
3. Pay out. Accrued commissions can be paid to the employee at any time, with detailed reports of every movement. The amount paid is deducted from turnover.

There is no room for mistakes with commissions. When a company introduces this type of plan, it makes a commitment to its employees. Changing day-to-day circumstances can affect morale and motivation and make employees question their goals. Make sure you have the calculations right and good commission software. Skip the manual math — calculate and pay employee commissions quickly with Reservation.Studio.