employmentcommercial

Commission Structure Clause in UK Contracts: What It Means & Example Wording

A commission structure clause defines how and when a salesperson, agent, or intermediary earns commission on sales, deals, or introductions. It sets out the commission rate, the trigger event for earning commission (e.g., when the sale is made, when the invoice is issued, or when payment is received), and any conditions such as clawback if the customer cancels. In the UK, commission terms are contractual, and the Commercial Agents (Council Directive) Regulations 1993 provide additional protections for self-employed commercial agents.

Last updated: February 2025

When to Include a Commission Structure Clause

In employment contracts for sales roles where commission is a significant part of the total compensation
In agency agreements where a commercial agent introduces clients or facilitates sales on behalf of a principal
In referral and introducer agreements where one party pays a fee for business introductions

Example Wording

The Employee shall be entitled to commission at the rate of [X]% of the net invoice value of all sales generated by the Employee that are accepted by the Company and paid for by the customer. Commission shall be calculated monthly and paid in arrears on the [date] of the following month, subject to deductions for tax and National Insurance. If a customer cancels an order, returns goods, or fails to pay within [90] days of the invoice date, the Company reserves the right to deduct the relevant commission from future commission payments. The Company reserves the right to amend the commission structure on [30] days' written notice. Note: This is illustrative wording only and should be tailored by a qualified legal professional.

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Commission Structure Clause Enforceable in the UK?

Commission clauses are enforceable as contractual terms. The key legal issue is defining when commission is 'earned' versus when it is 'payable'. Once commission is earned, the employer cannot withhold it without contractual authority. For self-employed commercial agents, the Commercial Agents (Council Directive) Regulations 1993 provide mandatory rights to commission on transactions concluded during the agency, and a right to compensation or an indemnity on termination. These regulations cannot be contracted out of. In employment, if commission forms a significant part of pay, reducing or withdrawing it may constitute a breach of contract or constructive dismissal.

Common Mistakes

Failing to define clearly when commission is earned — is it on order, on invoice, or on payment? Ambiguity leads to disputes
Not addressing what happens to pipeline deals when the employee leaves — should commission be paid on deals in progress at the termination date?
Ignoring the Commercial Agents Regulations when appointing self-employed agents — these provide mandatory compensation on termination that can amount to two years' commission

FAQ

Can my employer change my commission structure?

Only with your agreement, unless the contract expressly reserves the right to amend the commission structure. A unilateral change to commission terms without contractual authority is a breach of contract and could amount to constructive dismissal. Even where the contract allows changes, the employer must act reasonably and give adequate notice.

Am I entitled to commission on deals in progress when I leave?

This depends on the contract. If commission is earned on order acceptance, you should receive commission on orders accepted before you leave. If it is earned on payment, you may not receive commission on unpaid invoices. For commercial agents, the Regulations provide specific rights to post-termination commission on deals resulting from the agent's efforts.

Related Clauses

Bonus Clause

A bonus clause sets out the terms on which an employee may receive a bonus payme...

Clawback Clause

A clawback clause allows an employer or contracting party to reclaim payments al...

Payment Terms Clause

A payment terms clause specifies when, how, and in what currency payment must be...

Termination Clause

A termination clause sets out how and when a contract can be brought to an end b...

Generate contracts with the right clauses

AccountsOS generates UK-compliant contracts with all the clauses your business needs. From £10/month.

Get Started Free

This is guidance for UK businesses, not legal advice. Example wording is illustrative. Consult a solicitor for complex matters.

View all clause explainers