Commission Pay Explained for Employers

Commission pay is a core component of reward structures in many UK organisations, particularly those operating in sales-driven, performance-based, or revenue-generating environments. Employers rely on commission schemes to incentivise productivity, reward contribution, and align employee behaviour with commercial outcomes. Yet despite being widely used across industries, commission remains one of the most commonly litigated elements of pay. Disputes often arise around how commission is calculated, when it becomes due, how it should be paid, and whether it forms part of wages for the purpose of the Employment Rights Act 1996. In particular, Part II of the Employment Rights Act 1996, which governs unlawful deductions from wages, is frequently relied upon by employees seeking to recover unpaid commission. Because commission sits at the intersection of contract law, statutory wage protections, and evolving case law around holiday pay and equality, employers must understand its legal meaning and practical implications. Tribunals will usually interpret ambiguous contractual wording about commission against the employer, so a lack of clarity in drafting can significantly increase legal risk.

What this article is about: This article provides a comprehensive and employer-focused explanation of what “commission pay” means under UK employment law, how different types of commission schemes operate, the legal status of commission as wages, the impact on termination and holiday pay, and the common risks HR teams must manage. It also explains best practice for drafting, reviewing, and implementing commission arrangements, helping employers strengthen compliance, reduce disputes, and communicate unambiguous rules to employees. The analysis draws on statutory protections under the Employment Rights Act 1996 and Working Time Regulations 1998, as well as key case law on holiday pay and commission, and highlights the relevance of the Equality Act 2010 where commission outcomes may disadvantage particular groups. The aim is to give HR professionals and business leaders the legal clarity required to design defensible and commercially effective commission structures.

Commission schemes can be powerful tools when designed properly, but poorly drafted provisions, unclear triggers, or inconsistent application can create significant exposure—from unlawful deduction from wages claims to breach of contract disputes involving large sums. The way in which discretion is exercised over commission, bonuses, and targets is also open to challenge. Where employers retain a discretion around variable pay, they must exercise that discretion in a way that is rational, in good faith, and not arbitrary or capricious, in line with the “Braganza” duty that has developed in case law. For employers, the key is understanding both the legal meaning of commission and how to embed clarity and certainty into the contractual framework while ensuring that any discretionary elements are exercised lawfully.

At the end of this introduction, employers will have a foundational understanding of why commission matters legally, how it fits within wider pay structures, and the areas where compliance failures commonly arise. The following sections then build on that foundation with detailed guidance on drafting, implementation, HR management of commission schemes, and the treatment of commission in scenarios such as holiday, notice periods, garden leave, variation of terms, and termination.

Section A: What Commission Pay Means in UK Employment Law

Commission pay sits within a specific legal framework in the UK, and employers must understand how the law classifies and regulates commission to ensure schemes are compliant and enforceable. While commission is generally understood as a payment linked to sales or performance, its legal meaning is more precise. Under UK employment law, commission can be classified as wages, discretionary remuneration, or a hybrid form of variable pay depending on how the employer structures the scheme and how clearly the rules are documented. This section explains the legal meaning of commission, the different types of schemes employers can use, and the implications of each model, with particular emphasis on how tribunals interpret contractual wording and apply statutory protections such as Part II of the Employment Rights Act 1996.

1. Definition of commission pay

Commission is a form of variable remuneration paid to an employee based on measurable performance outcomes, typically linked to revenue generation or specific business activity. Legally, commission becomes contractually enforceable where the employment contract or commission plan sets out entitlement, calculation, and payment rules. When the contract states that commission is part of the employee’s pay package, it generally forms part of “wages” under the Employment Rights Act 1996. Part II of the Act, which governs unlawful deductions from wages, protects employees from unauthorised non-payment of sums properly due under their contract, including commission that has been earned in accordance with scheme rules.

Commission is distinct from bonuses and other incentive payments because it is usually directly tied to quantifiable outputs such as concluded sales, revenue generated, or accounts won. Where the entitlement and formula are clearly defined, employees can enforce commission payments through the employment tribunal if the employer fails to pay them. Tribunals also often interpret ambiguous commission wording against the employer, based on established contractual interpretation principles, reinforcing the importance of precise drafting.

2. Types of commission schemes

• Individual commission: Paid based on an employee’s personal performance, often calculated as a percentage of the value of sales or deals secured.
• Team or pooled commission: Earned collectively by a department or team, with distribution based on agreed criteria such as role, seniority, or contribution.
• Tiered commission: Higher rates of commission awarded once employees exceed set thresholds, incentivising higher performance levels.
• Fixed-rate commission: A flat amount paid per sale, customer acquisition, or completed activity, regardless of value.
• Discretionary commission: Payments made at the employer’s discretion, with no contractual entitlement unless the exercise of discretion establishes a consistent pattern or expectation.

Each scheme type has different legal implications. Contractual and formula-based schemes create enforceable rights, whereas discretionary schemes provide more flexibility but carry legal risks if discretion is exercised inconsistently or irrationally. Even where labelled “discretionary”, consistent past practice can create implied contractual entitlements. The employer’s exercise of discretion must comply with the Braganza duty—meaning decisions must be rational, evidence-based, non-arbitrary, and free from discrimination.

3. Difference between commission and other variable pay

Commission is often confused with bonuses, incentives, or performance-related pay. While there can be overlap, the distinctions matter for compliance and enforceability:

• Commission is tied to transactional performance, such as concluded sales or revenue.
• Bonuses may depend on business performance, individual contribution, or discretionary assessment.
• Incentive payments reward behaviours or achievements not specifically tied to revenue generation.

The more formulaic and predictable a payment is, the more likely it is to constitute contractual wages under the ERA 1996. Genuinely discretionary payments remain flexible but must still be administered lawfully and consistently.

4. When commission legally counts as “wages”

Commission qualifies as wages under the Employment Rights Act 1996 where:

• the employee has a contractual entitlement to the commission;
• a clear formula or calculation method is set out; and
• the employee has satisfied the conditions necessary to earn it.

Where these conditions are met, non-payment may amount to an unlawful deduction under Section 13 ERA 1996. Employers cannot withhold commission for disciplinary reasons, performance concerns unrelated to the scheme, administrative delay, or subjective assessments unless expressly authorised by contract and applied lawfully. Tribunals examine whether the contractual trigger for earning the commission has been met and whether any withholding has lawful contractual justification.

5. Contractual, discretionary, and hybrid schemes

Employers must understand the legal differences between the principal forms of commission structures:

• Contractual commission: Creates a binding entitlement once performance conditions are met. Failure to pay may result in unlawful deduction or breach of contract claims.
• Discretionary commission: Allows employers to determine whether to award commission and in what amount. However, discretion must be exercised rationally, consistently, and without discrimination, in accordance with the Braganza duty.
• Hybrid schemes: Combine fixed contractual elements with discretionary uplifts or additional variable components. These require precise drafting to avoid confusion over which parts of the scheme are enforceable.

Contractual structures create certainty but increase the risk of legal claims if the employer fails to apply the rules as written. Discretionary structures give employers greater flexibility but expose them to challenges where discretion is applied inconsistently or without clear reasoning. Hybrid schemes must clearly delineate which components are contractual and which are discretionary to avoid ambiguity. Employers should also be mindful that tribunals often look beyond the label used and will consider the actual operation of the scheme in practice.

This section has explained the legal meaning of commission pay in the UK, clarified how different scheme structures operate, and highlighted why the contractual classification of commission is central to compliance under the Employment Rights Act 1996. Understanding these distinctions is essential for employers seeking to design commission arrangements that incentivise performance, reduce ambiguity, and limit exposure to legal disputes. The next section builds on this by explaining how commission schemes operate in practice, including calculation mechanics, payment timing, and clawback considerations.

Section B: How Commission Schemes Operate in Practice

Commission schemes only function effectively when employers define in clear, unambiguous terms how commission is earned, calculated, accrued, and paid. In practice, many disputes arise not from the concept of commission itself, but from unclear drafting around the mechanics of how a scheme works and poor alignment between written terms and day-to-day operation. Employers must therefore understand the operational stages of a commission scheme—from the point at which entitlement is triggered, to the calculation methodology, to the timing and conditions of payment. This section sets out how commission schemes typically operate in UK organisations, the practical and legal considerations that employers must address, and the common issues that lead to unlawful deduction from wages claims under Part II of the Employment Rights Act 1996.

1. Calculating commission

The calculation of commission must be transparent and based on a fixed, understood formula. Employers typically adopt one or more of the following calculation methods:

• Percentage of revenue or profit: Commission is calculated as a percentage of the revenue or profit generated by the employee, team, or business unit.
• Tiered structures: Commission rates increase once employees reach defined thresholds, so that higher performance levels attract higher marginal commission rates.
• Flat-rate payments: A fixed sum is paid per sale, customer acquisition, appointment booked, or other defined activity, regardless of deal value.
• Margin-based calculations: Commission is linked to profit or margin rather than headline sales price, aligning incentives with business profitability.

Whatever method is chosen, the formula should be clearly set out in writing, including definitions of revenue, margin, qualifying sales, cancellations, refunds, discounts, or adjustments. Employers should specify whether commission is calculated monthly, quarterly, annually, or over another period, and whether caps, floors, or smoothing mechanisms apply. Tribunals will focus heavily on the wording of the contractual formula and how it has been applied in practice, so ambiguity in any of these elements can provide fertile ground for disputes.

2. Trigger events for earning commission

The trigger event defines when commission is earned and is one of the most important elements of any commission scheme. Employers must specify the exact moment at which entitlement arises, such as:

• when a sale is made and the customer signs a contract;
• when an invoice is raised or issued;
• when a product or service is delivered or “goes live”;
• when the employer receives payment from the customer in cleared funds;
• when a particular milestone or implementation stage has been completed.

If the trigger is not clearly defined, employees may argue that commission is earned earlier than the employer intended, for example at the point of verbal agreement or initial order, rather than upon payment or delivery. Conversely, if the trigger is defined in an overly restrictive or shifting way, employees may challenge the term as unreasonable or argue that the employer has exercised any relevant discretion in bad faith. The trigger definition is also critical when assessing entitlement to commission during notice periods or garden leave, as tribunals will examine whether the conditions for earning commission were met while the employee was still employed.

3. When commission becomes due and payable

Commission may be earned at one point, but only become payable at a later date once certain conditions are satisfied. Employers often use this mechanism to ensure that commission reflects genuine and sustained business revenue rather than speculative or incomplete transactions. For example:

• Commission may be earned when the sale is concluded, but only payable once the employer has received cleared funds from the customer.
• Commission may be payable only after a cancellation, refund, or cooling-off period has expired.
• Commission may accrue on a monthly basis but only be paid on a quarterly or annual reconciliation date.

Where conditions are imposed on payment, these must be clearly documented, transparent, and consistently applied. Employers should avoid creating terms that could be seen as unreasonable or unenforceable, such as deferring payments excessively or indefinitely, or reserving a broad discretion to delay or reduce payments without clear criteria. The distinction between “earned” and “payable” is central to unlawful deduction claims: if a tribunal finds that commission was earned under the scheme rules, it will then consider whether any delay, non-payment, or reduction is authorised by the contract. Employers therefore need to be specific about both the trigger and the payment date, and to ensure that payroll processes align with the written scheme.

4. Recovering overpayments, clawback clauses, and compliance rules

Commission schemes commonly include mechanisms for recovering overpayments or clawing back commission where sales do not ultimately complete or where customer payments are refunded. Employers may use:

• Clawback provisions: Clauses requiring employees to repay commission in defined circumstances, for example if a sale is cancelled or refunded within a certain period.
• Offsetting: Reducing future commission payments to offset previous overpayments or commission that must be reversed.
• Reconciliation processes: Periodic checks (often monthly or quarterly) to correct errors, reconcile pipeline assumptions with actual revenue, and adjust for cancellations.

Clawback and deduction clauses must be drafted with precision. Under Section 13 of the Employment Rights Act 1996, deductions from wages (including commission) are lawful only where authorised by statute, a relevant provision of the worker’s contract, or the worker’s prior written consent. General, vague, or overly broad clawback rights may be challenged as unauthorised deductions or as unenforceable penalty clauses under common law, particularly where they require repayment of sums that are out of proportion to the employer’s genuine loss. HR and legal teams should therefore ensure that clawback provisions are specific, proportionate, time-limited, and clearly communicated, and that any offsets applied through payroll are supported by documented contractual authority and accurate records.

5. Commission disputes and unlawful deduction from wages

Commission frequently becomes the subject of disputes because employees may argue that they have earned commission even where the employer takes a different view, or because the employer has sought to change or reinterpret scheme rules after the event. Common issues include:

• disagreements over whether particular deals or accounts qualify for commission under the scheme rules;
• arguments about whether work done before termination should attract commission, particularly where the trigger occurs after employment ends;
• challenges to the validity or fairness of clawback arrangements, especially where large sums are involved;
• claims that the employer has withheld commission without clear contractual authority or has applied discretionary elements inconsistently.

Where commission qualifies as wages, employees can bring claims for unlawful deduction from wages under Part II of the Employment Rights Act 1996. Tribunals will examine the wording of the commission scheme, how it has operated in practice, and whether the employee has satisfied the conditions for earning commission. They will also ask whether any deduction or withholding is authorised by an express term that complies with Section 13 ERA 1996, and whether the employer’s exercise of any discretion over commission was rational and non-discriminatory. Employers who maintain accurate records of calculations, triggers, cancellations, clawbacks, and decision-making are better placed to defend such claims and demonstrate that they have applied the scheme in line with its terms.

This section has explained how commission schemes operate in practice, highlighting the need for clear drafting around calculation methods, trigger events, and payment structures, and the importance of carefully drafted and lawfully applied clawback mechanisms. Employers must ensure that their commission schemes identify precisely when commission is earned and when it becomes payable, and that any deductions or recoveries are explicitly authorised in the contract and implemented in accordance with Section 13 ERA 1996. Disputes often arise from ambiguity, inconsistent application, or attempts to vary payment conditions without clear contractual authority. A well-designed, transparent commission scheme, backed by robust HR and payroll processes, reduces legal exposure and creates predictable, defensible remuneration arrangements.

Section C: Legal Compliance Requirements for Employers

Commission schemes are governed by a combination of contractual principles and statutory wage protections. Employers must ensure that their commission arrangements comply with the Employment Rights Act 1996, Working Time Regulations 1998, and the Equality Act 2010, as well as case law governing holiday pay, discretion, and contractual variation. Failure to build legal compliance into scheme design exposes employers to unlawful deduction from wages claims, breach of contract disputes, discrimination complaints, and challenges relating to unfair variation of contractual terms. This section explains the core legal obligations employers must meet when designing, administering, and amending commission schemes, drawing on key case law such as Lock v British Gas, Bear Scotland v Fulton, Brazel v Harpur Trust, and the principles in Braganza v BP Shipping on rational exercise of discretion.

1. Payment timing rules under the Employment Rights Act 1996

The Employment Rights Act 1996 provides statutory protections for employees in relation to the payment of wages. Commission becomes protected as wages where:

• the commission arises from a contractual entitlement;
• the employee has met the conditions for earning it (as defined in the scheme rules); and
• the amount can be calculated using an agreed formula or objective method.

Once commission meets these criteria, employers must pay it within the normal payroll cycle unless the written contract stipulates an alternative, lawful timetable. Under Section 13 ERA 1996, deductions from wages are unlawful unless authorised by statute, a contractual term, or the worker’s prior written consent. Withholding commission due to administrative delays, performance concerns, or managerial discretion is generally unlawful unless the contract specifically permits it. Employers must also retain accurate payroll records showing when commission was earned and when it was paid, as tribunals frequently request this evidence in unlawful deduction cases.

2. Contractual drafting requirements (clarity, certainty, enforceability)

Commission schemes must be drafted with precision to be enforceable. Employers should ensure that scheme rules clearly state:

• what constitutes a qualifying sale or performance event;
• the trigger point at which commission is earned;
• the formula for calculating commission and any caps or thresholds;
• whether commission is based on invoiced amounts, received revenue, or profit;
• the timing of payment, including reconciliation points;
• circumstances in which commission may be withheld, reduced, or deferred;
• the operation of clawback or offset provisions; and
• how and when the scheme may be amended or replaced.

Ambiguity in any of these areas can lead to disputes or render parts of the scheme unenforceable. Employers must ensure that the commission plan forms part of the employment contract or is expressly incorporated by reference. Where employers seek to vary contractual commission provisions, they must follow lawful variation processes. Case law such as Abrahall v Nottingham City Council confirms that continued employment does not always amount to acceptance of detrimental changes, and employers should not assume that silence equates to agreement.

3. Commission during notice periods, garden leave, and termination

Commission entitlement during notice periods and after termination is a frequent source of litigation. Key principles include:

• If an employee has earned commission before termination, the employer must pay it, even if the payment date falls after the termination date.
• If the employee is on garden leave, entitlement generally remains unless the contract expressly excludes commission during such periods and the clause is unambiguous.
• “Active employment” clauses are interpreted narrowly and cannot override statutory protections where commission has already been earned.
• If commission entitlement depends on a trigger that occurs after termination, payment depends entirely on the contractual wording—tribunals examine whether the trigger is tied to work already performed.

Disputes commonly arise where employers apply payment-date restrictions to avoid paying commission accrued during employment. Tribunals assess whether the contractual wording clearly supports such exclusions and whether the employee had satisfied the conditions for earning commission before termination.

4. Holiday pay implications and relevant case law

Case law has established that where commission forms part of an employee’s normal remuneration, it must be reflected in holiday pay. The key decisions include:

• Lock v British Gas: Regular commission must be included in statutory holiday pay (the first 4 weeks of leave).
• Bear Scotland v Fulton: Non-guaranteed overtime forms part of “normal remuneration”.
• Brazel v Harpur Trust: Reinforces that statutory leave must be paid at a rate reflecting normal earnings, using an appropriate reference period.

Employers must calculate holiday pay using an appropriate reference period that accurately reflects average earnings, including regular commission. While the requirement applies only to the first four weeks of statutory holiday, many employers apply it across all leave types for simplicity. Failure to comply exposes employers to unlawful deduction claims extending back over multiple pay periods, subject to limitation rules.

5. Equal pay, discrimination, and fairness of targets

Commission schemes must comply with the Equality Act 2010. Risks arise where:

• targets are structured in a way that disproportionately disadvantages particular groups (potential indirect discrimination);
• territories, leads, or accounts are allocated unevenly without objective justification;
• discretionary elements are exercised inconsistently or subjectively;
• part-time workers are disadvantaged compared to full-time workers.

The Supreme Court in Essop v Home Office confirmed that indirect discrimination does not require proof of why groups are disadvantaged—only that they are. Employers should therefore regularly audit commission outcomes to ensure fairness and take corrective action where discrepancies arise. Discrimination compensation is uncapped, making compliance essential.

This section has outlined the core legal compliance requirements for employers operating commission schemes. Employers must ensure that commission rules are clear, contractual, and consistently applied; that commission payments are not withheld unlawfully; and that schemes reflect statutory obligations on holiday pay and equality. Notice periods, garden leave, and termination trigger significant risk where scheme wording is unclear. By embedding legal compliance into scheme design and administration, employers reduce disputes and ensure that commission structures support commercial goals while meeting statutory obligations.

Section D: HR Best Practice for Managing Commission Schemes

Commission schemes do not operate in isolation. They must be supported by HR processes that ensure fairness, transparency, and consistency, while reflecting the legal obligations set out in the Employment Rights Act 1996, Equality Act 2010, and relevant case law on discretion and pay. Even a well-drafted commission plan can lead to conflict if it is administered poorly, targets are unrealistic, opportunities are distributed unevenly, or changes are implemented without consultation. This section outlines the HR best practices that employers should adopt to manage commission schemes effectively, reduce the risk of disputes, and create a transparent performance environment that aligns employee incentives with organisational objectives.

1. Setting clear KPIs and transparent targets

Commission schemes are most effective when employees understand what they must do to earn commission. HR teams should work with operational leaders to define:

• specific performance metrics linked to measurable outputs;
• targets that are realistic, achievable, and aligned with market conditions;
• timeframes within which performance will be assessed;
• rules for target adjustment to reflect operational changes or unforeseen factors.

Targets that are unclear, unachievable, or inconsistently adjusted can lead to disengagement and potential discrimination risks. Employers must ensure that changes to targets are communicated clearly and that employees are given reasonable notice to adjust their performance approach.

2. Documenting scheme rules clearly

Commission rules must be documented comprehensively and shared with all eligible employees. Documentation should include:

• the contractual status of the scheme and whether it is incorporated into the employment contract;
• eligibility criteria, including any exclusions;
• the calculation method and definitions of key terms;
• payment timing rules and reconciliation dates;
• clawback, offset, refund, and correction mechanisms;
• variation procedures, including required notice periods;
• how discretionary elements will be applied in line with Braganza principles.

Employees should acknowledge receipt of scheme documentation. HR should periodically review scheme wording to ensure it remains aligned with the employer’s operational practices and legal requirements. Any inconsistencies between documentation and practice pose significant risk in tribunal proceedings.

3. Ensuring fairness in allocation of leads and territories

Perceived unfairness in the allocation of opportunities is one of the most common sources of grievance in commission-driven environments. Employers must take steps to ensure that:

• leads, prospects, and territories are allocated using objective and transparent criteria;
• client ownership and handover rules are clear and consistently applied;
• historic accounts or key clients are not disproportionately assigned to preferred individuals without justification;
• part-time workers and employees with protected characteristics are not disadvantaged.

Uneven allocation can create significant Equality Act 2010 risks, particularly around indirect discrimination. HR should audit allocation decisions regularly and document objective business reasons for any differences in opportunity distribution.

4. Communicating changes to commission structures

Commission arrangements form part of an employee’s overall reward package, meaning changes must be handled with care. Employers should:

• consult employees in advance of proposed changes;
• provide clear written notice of amendments;
• avoid unilateral variations to contractual commission terms;
• use formal variation procedures where changes affect contractual rights;
• ensure any discretionary changes comply with Braganza principles and are supported by evidence.

Improperly handled changes are a common catalyst for claims of unlawful deduction, constructive dismissal, or breach of contract. Case law on variation, including Abrahall v Nottingham City Council, demonstrates that continued employment does not necessarily amount to acceptance of detrimental changes, reinforcing the need for formal consultation and agreement.

5. Managing disputes and building defensibility in scheme design

Even well-designed schemes can give rise to disputes. HR teams must be prepared to manage concerns fairly and consistently. Best practice includes:

• investigating disputes promptly and gathering all relevant evidence;
• ensuring decisions align with written scheme rules and documented practice;
• applying discretionary provisions rationally and consistently;
• keeping detailed records of calculations, adjustments, and decision-making rationale;
• seeking legal advice where disputes involve large sums or complex contractual issues.

Transparent processes, well-evidenced decisions, and robust documentation are critical in defending tribunal claims. A defensible commission scheme is one in which rules are clear, applied consistently, and supported by verifiable evidence of fair administration.

This section has outlined the HR best practices essential to managing commission schemes in a compliant, fair, and defensible manner. The success of a commission structure depends not only on clear contractual drafting but also on how targets are set, how opportunities are allocated, and how disputes are handled. Transparent communication, proper consultation, and consistent application of scheme rules all help ensure that commission arrangements reward performance effectively while minimising legal and employee-relations risks.

FAQs

What does commission pay mean for employees?

Commission pay refers to remuneration earned by an employee based on measurable performance outcomes such as sales, revenue generation, or other defined business activity. For employees, it provides an opportunity to increase earnings through their performance. For employers, it offers a structured method of incentivising productivity. Commission becomes legally enforceable where the employment contract or commission scheme clearly sets out entitlement, calculation, and payment provisions. Once contractual, commission is treated as wages under Part II of the Employment Rights Act 1996.

Is commission counted as wages?

Yes. Under the Employment Rights Act 1996, commission is classified as wages when it arises from a contractual entitlement and the employee has satisfied the scheme’s conditions for earning it. Section 13 ERA 1996 protects employees from unlawful deductions, meaning employers cannot withhold earned commission without lawful contractual authority. If employers fail to pay commission that has been earned, employees may bring claims for unlawful deduction from wages in the employment tribunal.

Do employees earn commission during notice periods?

Whether employees earn commission during notice periods depends entirely on the wording of the commission scheme. If the employee has met the conditions for earning commission before or during the notice period, the employer must pay it—even if the payment date falls after termination. If the employee is on garden leave, entitlement typically continues unless the contract expressly excludes commission during such periods. “Active employment” clauses are interpreted narrowly and cannot remove entitlement to commission that has already been earned.

Does commission count towards holiday pay?

In many cases, yes. Case law—particularly Lock v British Gas, Bear Scotland v Fulton, and Brazel v Harpur Trust—establishes that where commission forms part of an employee’s normal remuneration, it must be reflected in statutory holiday pay. Employees should not be financially disadvantaged when taking annual leave. Employers must therefore calculate holiday pay using an appropriate reference period reflecting the employee’s average earnings, including regular commission. This requirement applies to the first four weeks of statutory annual leave, although some employers extend it to all leave types for simplicity.

Can employers change commission schemes?

Employers can change commission schemes, but they must follow lawful contractual and consultation procedures. Where the scheme forms part of the employment contract, unilateral changes can amount to breach of contract or unlawful deduction from wages. Employers should consult employees, provide written notice, and use formal variation procedures where required. Case law such as Abrahall v Nottingham City Council highlights that continued employment does not always equate to agreement to detrimental changes. Discretionary schemes offer more flexibility, but the exercise of discretion must still comply with Braganza principles.

Can commission be clawed back?

Yes, but only where the contract expressly authorises it. Under Section 13 ERA 1996, deductions from wages—including the recovery of overpaid commission—are lawful only if authorised by statute, the contract, or the employee’s prior consent. Clawback provisions must therefore be drafted clearly, applied consistently, and be proportionate to the employer’s genuine loss. Overly broad or punitive clawback clauses may be challenged as unlawful deductions or unenforceable penalties under common law.

Does commission count towards national minimum wage compliance?

Commission can count towards national minimum wage (NMW) compliance, but only if it is paid within the same pay reference period. Employers must ensure that total pay—including commission—does not fall below the NMW for each pay reference period individually. Commission paid late, or earned in one period but paid in another, may cause unintended NMW breaches. Regular audits are essential, especially for roles with low basic salaries and large commission components.

Conclusion

Commission pay plays a central role in the reward strategies of many UK employers, particularly in performance-driven sectors where revenue and business growth rely on individual and team contributions. However, commission is also one of the most legally sensitive components of remuneration. The legal meaning of commission, the moment it becomes earned, and the rules governing when it must be paid all depend on the precise wording of the employment contract and commission scheme. As highlighted throughout this article, clarity in drafting and consistency in application are essential for avoiding disputes and ensuring compliance with statutory obligations.

Employers must ensure that their commission schemes are unambiguous, enforceable, and aligned with the Employment Rights Act 1996, the Working Time Regulations 1998, and the Equality Act 2010. Once commission has been earned, failure to pay it may amount to an unlawful deduction under Section 13 ERA 1996. Employers must also ensure that regular commission is included in statutory holiday pay calculations in line with case law such as Lock v British Gas, Bear Scotland v Fulton, and Brazel v Harpur Trust. Equal opportunity considerations must also be embedded within scheme design and administration to avoid direct or indirect discrimination risks.

For HR leaders and business owners, the focus should be on designing and implementing commission schemes that incentivise performance while minimising legal exposure. This requires transparent documentation, fair distribution of opportunities, reasoned and consistent exercise of discretion, proper consultation on changes, and meticulous record-keeping. Disputes are far less likely to arise where commission rules are clear, communication is open, and decisions are well-evidenced.

By taking a legally informed and well-structured approach to commission scheme design, employers can create reward frameworks that drive performance, support retention, and remain defensible under scrutiny. Effective commission schemes are those where employees understand the rules, trust the fairness of the system, and receive pay that accurately reflects their contributions. With robust drafting, compliance, and HR processes, employers can ensure that commission remains a powerful and legally compliant component of their reward strategy.

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