Commission: Employer Legal Guide

Commission remains one of the most widely used incentive mechanisms in UK employment relationships, particularly for sales-driven, business development, financial services, recruitment, and commercial roles. For employers, a well-designed commission structure can increase productivity, align employee behaviour with business objectives, and provide a transparent link between performance and reward. For HR teams, however, commission schemes also present significant legal and operational risks if the terms are unclear, undocumented, or poorly managed.

What this article is about: This article provides a comprehensive legal and practical guide for UK employers and HR professionals on the operation of commission schemes. It explains what commission is in employment law terms, how to draft an effective commission structure, how to manage commission payments transparently, and how to reduce legal risk around unlawful deductions, holiday pay, leavers, and changes to pay schemes. The guidance is aimed at employers who want clarity, compliance, and consistency in how commission is used within their organisation. It also draws on the principles established in key holiday pay and commission cases, without citing cases directly, to ensure accuracy around concepts such as normal remuneration, the EU-derived 4-week holiday requirement, and the limits on backdated deductions claims.

Many employers assume that commission operates on a simple basis: sales are made and commission is paid. In reality, the legal position is more complex. Commission can be either contractual or discretionary. It may count as “wages” under the Employment Rights Act 1996. It may need to be included in statutory holiday pay calculations, particularly for the first four weeks of EU-derived leave. Commission can accrue at different stages, be subject to clawback, or be withheld lawfully or unlawfully depending on the terms. Poorly worded clauses often lead to disputes, grievances, and breach of contract claims. It is also important to understand the three-month gap rule for unlawful deduction series claims, which may limit retrospective recovery.

At its core, the legal risk around commission arises from ambiguity. If a contract is unclear about when commission is earned, when it becomes payable, what triggers payment, how rates are calculated, or how schemes apply to leavers, an employee may argue they have a contractual entitlement to payment. Conversely, employers may be exposed to claims for unlawful deductions, breach of contract, or constructive dismissal where commission is withheld improperly or changed without consultation. For HR teams, the challenge is ensuring that schemes are drafted precisely and administered consistently. Tribunals will also consider the full range of scheme documentation, not only the contract, and will interpret ambiguity against the employer as the drafting party.

This article addresses these challenges by breaking down the key areas of legal regulation and HR practice that affect commission schemes. It outlines how to design a lawful, transparent, and commercially effective commission structure. It explains the employer’s obligations around payment, deductions, and accrual. It covers the complexities around holiday pay and commission—an area shaped heavily by case law and requiring careful calculation through a statutory 52-week lookback period. It then looks at leavers, scheme changes, clawback, and disputes—areas where employers often face significant risk if the documentation is not robust or if schemes have evolved into “custom and practice” arrangements over time.

Section Summary (Introduction)
The introduction sets the context for employers and HR professionals by explaining what commission is, why it presents both commercial opportunities and legal risks, and how the design and management of commission schemes must be approached with precision. It also outlines the purpose of the article: to give employers a complete, legally informed guide to drafting, operating, and managing commission schemes in compliance with UK employment law, including key principles on holiday pay, statutory wages protection, and the limits on altering commission structures without consent.

Section A: Understanding Commission in UK Employment Law

Commission plays a central role in many employment contracts, but its legal status varies depending on how it is drafted, documented, and administered in practice. For employers and HR professionals, understanding when commission forms part of an employee’s contractual pay, how it interacts with statutory wage protections, and what triggers liability for payment is essential. A lack of clarity in these areas often leads to grievances, disputes, and litigation. This section outlines the fundamental legal principles governing commission under UK law and provides the foundation for designing compliant commission structures.

1. What commission is

Commission is a form of performance-linked pay, usually calculated as a percentage of sales value, revenue generated, profit margin, or another measurable performance metric. Unlike basic salary, which is fixed, commission fluctuates based on results, making it attractive for roles where performance is closely tied to commercial outcomes.

Employers use commission to incentivise employees, reward productivity, and drive business growth. Commission can apply at the individual employee level, the team level, or across whole business units. Whether a scheme is based on individual or pooled performance, the legal analysis remains similar: if entitlement is contractual and relates to work done, it will generally be treated as wages under the Employment Rights Act 1996 once earned.

Commission schemes may be structured as:

• a percentage of revenue or profit
• a fixed amount per sale, lead, or milestone
• tiered or banded rates depending on performance
• commission pools where payments are shared across teams

In legal terms, commission is a contractual entitlement when it forms part of the employee’s remuneration and is set out in clear scheme rules or contractual wording. When commission is described or treated as guaranteed, formulaic, or performance-based without genuine employer discretion, it is likely to be considered contractual. When described as discretionary, employers retain greater flexibility, although the law constrains how that discretion can be exercised.

Understanding whether the scheme is contractual or genuinely discretionary is fundamental because it determines whether an employee can enforce payment as of right and how the statutory protections around wages will apply.

2. Contractual vs discretionary commission

Commission is contractual if the employment contract or associated scheme documentation sets out a clear entitlement or formula for calculating payments. Contractual commission becomes part of the employee’s remuneration package and must be paid according to the agreed terms. Once the conditions for earning are satisfied, employers cannot withhold contractual commission without breaching the Employment Rights Act 1996, unless withholding is specifically authorised by the contract and is lawful.

Commission is discretionary when the employer maintains flexibility over whether to award it, how much to award, or when. Employers use discretionary commission to retain control over costs or align payments with broader business considerations. However, discretionary does not mean unrestricted. UK employment law requires employers to exercise discretion:

• in good faith
• for a proper purpose
• not irrationally or perversely
• not in a way that is discriminatory
• consistently and transparently when applied to different employees

Tribunals will look at the substance of the scheme, not just the label. If a commission scheme is labelled “discretionary” but in practice is applied consistently using formulaic criteria, or has become established through custom and practice, a tribunal may find that the discretion is limited or that the commission is effectively contractual. Equally, if an employer applies discretion unfairly or inconsistently, employees may bring claims for breach of the implied term of mutual trust and confidence, discrimination, or unlawful deductions from wages.

It is also important to recognise that tribunals consider all scheme documentation when assessing entitlement: not only the employment contract but also commission plans, policy documents, emails, and historical practice. Where wording is ambiguous, it will generally be construed against the drafter (the employer) under the contra proferentem principle. This reinforces the need for clear, precise documents and for consistent administration over time.

3. When commission becomes “wages” under the Employment Rights Act 1996

Commission is categorised as “wages” under the Employment Rights Act 1996 when it is contractual and relates to work already done. This classification has significant consequences:

• employees have protection against unlawful deductions if commission that has been earned is withheld
• employers must ensure contractual terms clearly set out the conditions for earning, accruing, and paying commission
• commission that has been earned but not yet paid is still considered wages and cannot be withheld without contractual grounds

Commission usually becomes wages when all the conditions required to “earn” it have been satisfied. These conditions are often drafted as conditions precedent in the commission scheme and may include:

• the sale or contract being concluded
• the customer passing any cooling-off or cancellation period
• the employer receiving cleared payment
• delivery or activation of the goods or services
• all relevant performance or quality assurance criteria being met

Where contracts do not specify when commission is earned, courts and tribunals may adopt a common-sense interpretation that tends to favour the employee. Ambiguity increases the risk that the commission will be treated as earned earlier than the employer intended, which can in turn widen the scope of wages protection and limit the employer’s ability to withhold or claw back payments.

From an HR perspective, it is critical that contracts and scheme rules distinguish between:

• earned commission (all contractual conditions satisfied so that the employee has a right to the commission)
• accrued commission (entitlement has arisen but payment is not yet due, for example because of a payment or invoicing cycle)
• payable commission (payment is now due in accordance with the scheme’s payment dates)

Once commission has reached the stage where it is earned or accrued under the scheme, it will generally attract statutory wages protection. Employers who seek to delay or prevent commission being earned by, for example, withdrawing leads or changing the basis of allocation without consultation, risk breaching the implied duty of mutual trust and confidence. Clear drafting and consistent application are therefore essential to defining when commission becomes wages and to reducing the risk of unlawful deductions claims.

Section A Summary
Section A explains the legal fundamentals of commission schemes, distinguishing between contractual and discretionary arrangements, and clarifying when commission becomes wages under the Employment Rights Act 1996. It highlights the importance of precise drafting, careful use of conditions precedent, and consistent administration to avoid disputes, protect the employer’s position, and ensure that commission schemes are legally enforceable and compliant. It also underlines that ambiguous wording will generally be interpreted in the employee’s favour and that tribunals will consider the full set of scheme documents and practices when determining entitlement.

Section B: Designing a Legally Compliant Commission Scheme

Designing a commission scheme is not simply a commercial or HR exercise. It is a contractual and legal process that requires clear terms, precise drafting, and alignment with statutory obligations. A poorly drafted or undocumented scheme is one of the most common sources of disputes, grievances, and employment tribunal claims. This section sets out the essential elements employers and HR teams must consider when creating a legally compliant commission structure, ensuring transparency, enforceability, consistency, and fairness across the organisation. It also highlights the importance of avoiding indirect discrimination, maintaining compliance with minimum wage rules, and ensuring that schemes do not evolve into enforceable custom and practice arrangements unintentionally.

1. Essential contractual terms

A commission scheme should be set out in writing, either within the main contract of employment or in a separate commission plan referenced by the contract. To avoid ambiguity and legal exposure, the scheme should specify:

• How commission is calculated
  Including the formula, percentage, tiers, and any performance multipliers. The calculation method must be unambiguous, measurable, and capable of objective verification.
• What counts as a qualifying sale or event
  For example, whether commission is based on revenue generated, completed sales, signed contracts, paid invoices, or profit margins. Employers should also define exclusions such as cancelled sales, non-paying customers, or internal reallocations.
• When commission is earned
  This is essential for determining when commission legally becomes “wages”. Conditions precedent may include customer payment, contract completion, delivery or activation of services, cooling-off periods, or achievement of specific performance metrics.
• When commission is payable
  Payment cycles must be clearly stated—monthly, quarterly, or on defined trigger dates. Clear payment timing reduces the risk of unlawful deduction claims and prevents disputes over delayed payment.
• Conditions for eligibility
  Employers often restrict commission entitlement during probation, extended sickness absence, or periods of performance management. These limitations must be objectively justified, proportionate, and non-discriminatory to avoid claims under the Equality Act 2010.
• Minimum wage considerations
  Where commission makes up a substantial portion of total pay, employers must ensure compliance with National Minimum Wage rules across pay periods.
• How disputes will be resolved
  Including internal processes, evidence review, and escalation routes. Defined processes help manage grievances constructively and support consistency.

The more precisely each of these elements is defined, the more defensible the scheme is if challenged. Employers should also review commission plans annually to ensure they remain legally compliant, particularly in light of developing case law around holiday pay, wages, and indirect discrimination.

2. Transparency and objective criteria

Transparency is a central principle in the lawful operation of commission schemes. Ambiguity is one of the primary ways in which disputes arise, and uncertainty in scheme application can lead to significant legal risk. HR teams must ensure that employees understand:

• how performance is measured
• what they must do to qualify for commission
• how calculations are performed
• how exclusions, adjustments, or clawback provisions apply

Using objective, measurable criteria significantly reduces the risk of disputes. Examples include revenue targets, sales conversion thresholds, profit margins, and defined performance milestones. Subjective criteria—such as managerial discretion without defined boundaries—should be used sparingly and must be clearly documented. Unclear or inconsistent application of manager discretion can lead to claims of discrimination, equal pay breaches, or breach of the implied duty of trust and confidence.

Employers must ensure consistent application of commission rules across comparable employees and roles. Inconsistent application can result in equal pay claims or allegations that practices indirectly disadvantage certain groups. Regular audits can help maintain consistency and evidence fairness in application.

3. Working Time Regulations considerations (Holiday Pay)

One of the most significant legal developments affecting commission schemes concerns holiday pay and its relationship with “normal remuneration”. UK courts have held that workers must receive their normal pay when taking statutory leave. For employees whose earnings regularly include commission, this means that holiday pay must reflect a representative average of commission earnings.

Key principles employers must follow include:

• Commission that forms part of normal remuneration must be included in holiday pay calculations.
• A 52-week reference period must be used to determine average weekly pay where earnings vary.
• If the employee has fewer than 52 weeks of service, employers must use the number of weeks available.
• This requirement applies specifically to the first four weeks of EU-derived statutory holiday. Employers may choose to apply it to the full 5.6 weeks for simplicity.
• Commission must be included for workers on zero-hours, variable-hours, or irregular-earnings arrangements.

Failing to include commission in the relevant portion of holiday pay exposes employers to unlawful deduction claims. However, claims for backdated deductions may be limited by the rule that a gap of more than three months between deductions typically breaks the “series” of deductions.

From a practical HR perspective, employers should ensure:

• payroll systems correctly calculate average commission inclusion in holiday pay
• employees understand how holiday pay is calculated and its impact on commission
• contractual terms explain how holiday interacts with commission entitlement
• managers avoid discouraging employees from taking leave due to fears of losing commission, which could breach Working Time Regulations obligations

Section B Summary
Section B provides employers with a framework for designing a commission scheme that is legally compliant, transparent, and robust. It highlights the need for precise contractual terms, objective performance criteria, the importance of avoiding discrimination risks, and the legal requirement to incorporate commission into holiday pay calculations under the Working Time Regulations. By investing in clarity and compliance at the design stage, employers reduce disputes, protect their legal position, and create commission schemes that are fair, predictable, and commercially effective.

Section C: Managing Commission Payments

Managing commission payments requires precision, consistency, and full compliance with contractual and statutory obligations. Even when a commission scheme is well drafted, employers can still fall into legal difficulty during day-to-day administration—particularly where payments are delayed, withheld, miscalculated, or clawed back without clear contractual authority. This section provides a detailed guide for HR teams and employers on how to administer commission payments lawfully, minimise dispute risks, and ensure compliance with the Employment Rights Act 1996, the Equality Act 2010, and the implied duty of mutual trust and confidence.

1. Accrual and entitlement

Understanding when commission is earned, accrued, and payable is fundamental. These concepts determine when commission becomes “wages”, when it must be paid, and whether withholding or delaying payment could amount to an unlawful deduction or a breach of contract.

Earned commission
Commission is earned when the employee has met all contractual conditions associated with the sale or performance target. These conditions should be expressly drafted in the scheme rules and may include:

• the sale being concluded or contract signed
• the customer passing a cooling-off or cancellation period
• the employer receiving cleared payment
• delivery, activation, or onboarding being completed
• quality assurance or compliance checks being satisfied

If contracts are not explicit about what constitutes “earning” commission, tribunals will often adopt the interpretation that most fairly reflects the work done—an approach which tends to favour employees. Employers should also be aware that attempting to prevent employees from earning commission by withdrawing leads or altering allocation processes may breach the implied term of mutual trust and confidence.

Accrued commission
Accrued commission is commission that the employee has earned contractually but which is not yet payable until certain further conditions, such as customer payment or invoicing cycles, are met. Once commission has accrued, it generally falls under statutory wage protection and cannot be withheld except in circumstances authorised by the contract.

Payable commission
Payable commission is commission that must be paid on the contractual payment date. Employers should clearly state payment cycles and adhere strictly to them. Delays must only occur where expressly permitted by the contract, as unjustified delays may constitute an unlawful deduction or breach of contract.

To avoid disputes, employers should ensure that the scheme clearly distinguishes between earned, accrued, and payable commission and explains the conditions applicable to each stage. Clarity reduces ambiguity and limits the risk of tribunal determination based on common-sense interpretations that may not align with the employer’s intentions.

2. Clawback and deductions

Commission clawback is common in sectors where deals may fall through, customers cancel, or revenue is reversed after payment. However, clawback is tightly regulated by the Employment Rights Act 1996 and must be grounded in clear contractual authority. Employers cannot rely on broad or vague wording—clawback provisions must be specific, proportionate, and directly linked to legitimate business interests.

For clawback to be lawful, employers must ensure:

• a clear contractual term expressly authorises the deduction
• the clause sets out defined, legitimate triggers (such as cancellation or non-payment)
• detailed wording specifies whether clawback applies to gross or net commission
• the deduction does not reduce pay below National Minimum Wage thresholds (except where permitted)
• clawback is not used punitively or in a retaliatory manner
• employees have received the contractual terms in writing

Common lawful clawback scenarios include:

• customer non-payment or cancellation
• commission paid in error
• fraud or misconduct
• commission contingent on continued employment after a defined period

Clawback clauses must be strictly interpreted. If the wording does not cover the precise situation, the employer cannot lawfully reclaim the commission. Employers should avoid vague formulations such as “the company may reclaim commission at its discretion”—these are likely unenforceable and may breach statutory wage protections.

It is also essential that clawback does not inadvertently discriminate. For example, automatically clawing back commission from employees on maternity, disability-related absence, or other protected characteristic-linked leave may be discriminatory unless objectively justified.

3. Delays and disputes

Payment delays are one of the most common causes of commission disputes. Employers often delay payment due to cash flow issues, administrative errors, or disagreements over entitlement. Unless the contract gives the employer explicit authority to delay, late payment may amount to:

• an unlawful deduction of wages
• a breach of contract
• a breach of the implied term of mutual trust and confidence

Preventing disputes requires employers to:

• maintain accurate, real-time tracking of sales, cancellations, and commission metrics
• communicate entitlement clearly and provide employees with visibility of calculations
• ensure manager discretion is controlled by clear rules to prevent manipulation
• apply scheme rules consistently across all staff and periods
• train HR and payroll teams to understand entitlements and scheme triggers

Where disputes arise, employers should maintain a clear audit trail showing:

• how the commission figure was calculated
• which performance or revenue conditions were met
• any cancellations or adjustments applied
• the basis for any deductions or clawback

A transparent approach helps resolve disagreements early and reduces the risk of grievances escalating into tribunal claims. Repeated or unexplained delays may also undermine trust and confidence, increasing the risk of constructive dismissal claims.

Section C Summary
Section C explains the operational and legal considerations employers must follow when administering commission payments. It emphasises the importance of clearly defining when commission is earned, accrued, and payable, ensuring that clawback provisions are lawful and proportionate, and managing delays and disputes through transparent, consistent, and well-documented processes. By following these principles, employers reduce the risks of unlawful deductions, contractual disputes, discrimination issues, and damage to employee relations.

Section D: Commission for Leavers and Changes to Employment

Commission disputes frequently arise when an employee is leaving the business or when an employer seeks to change commission structures. These are high-risk areas because they directly affect pay, expectations, and the implied duty of mutual trust and confidence. Employers must handle both leaver entitlements and scheme changes with precision to avoid unlawful deduction claims, breach of contract, discrimination allegations, or constructive dismissal risks. This section provides a detailed overview of the legal framework governing commission for leavers and sets out best practice for making lawful and effective changes to commission schemes, including equality considerations and the importance of explicit contractual wording.

1. Entitlement during notice, garden leave, or redundancy

When an employee leaves the business, one of the most contentious questions is: what happens to their commission entitlement? The position depends almost entirely on the wording of the contract and the accompanying commission plan. Where the contract or scheme is ambiguous, tribunals tend to interpret the wording in favour of the employee, particularly where work contributing to commission entitlement was already completed.

Commission during notice periods
Unless expressly restricted, employees remain entitled to all contractual commission that they have earned or accrued during their notice period. Employers can limit the accrual of further commission during notice only if:

• the employment contract or scheme explicitly allows for this
• the restriction is clear and unambiguous
• the clause is not discriminatory in intent or impact
• the restriction does not retrospectively remove earned or accrued commission

If terms are silent, tribunals commonly find that commission continues to accrue during notice, particularly if the employee is still completing work that contributes to sales or revenue.

Commission during garden leave
Garden leave removes an employee from the business while keeping them bound by contractual restrictions. The default position is that an employee on garden leave is entitled to the salary and contractual benefits they would have received had they been actively working. This may include:

• commission earned before garden leave began
• commission linked to sales completed before garden leave
• average commission included within holiday pay calculations

To prevent new commission accruing during garden leave, employers must include clear, well-drafted contractual wording. If the contract or scheme is vague, tribunals may conclude that commission continues to accrue during the garden leave period, especially if commission normally reflects past work done.

Commission in redundancy situations
Where an employee is made redundant, employers must pay all earned or accrued commission up to the termination date. The employer’s reasons for termination do not affect entitlement to contractual commission.

Key considerations include:

• Statutory redundancy pay: Normally based on “week’s pay” rules, which may exclude variable commission unless it forms part of normal remuneration.
• Holiday pay on termination: Accrued leave must be paid including applicable commission averages.
• PILON (Payment in Lieu of Notice): Whether PILON includes commission depends on whether the PILON clause is contractual or treated as damages. If contractual and commission forms part of normal remuneration, it may need to be included.

Employers cannot avoid paying commission by accelerating termination dates or seeking to withhold commission that was already earned or accrued. Retrospective removal of commission rights is almost always unlawful.

2. Changes to commission structures

Employers may need to amend commission schemes due to changes in market conditions, restructuring, product developments, or strategic business decisions. However, altering commission structures—especially where they are contractual—is legally sensitive and requires careful management.

Contractual changes require employee consent
If the commission scheme forms part of the employment contract, employers cannot unilaterally change the structure, rates, triggers, or eligibility. Unagreed changes may constitute:

• breach of contract
• unlawful deduction of wages
• constructive dismissal
• discrimination or equal pay breaches

The “fire and rehire” approach—terminating employment and offering re-engagement on new terms—is legally possible but highly scrutinised by tribunals and ACAS. Employers must consult thoroughly, consider alternatives, and avoid disproportionate or discriminatory impacts.

Consultation and fairness
Even where the scheme is discretionary, employers should consult with employees before making material changes. Consultation supports good employee relations, reduces the risk of claims, and evidences that decisions were made rationally and not capriciously.

Employers should also carry out an equality impact assessment to ensure that proposed changes do not disproportionately affect employees with protected characteristics. Commission changes that disadvantage employees returning from maternity leave, disabled employees, part-time workers, or older workers may create discrimination risks unless objectively justified.

Transitional arrangements
To minimise disputes and avoid retrospective changes, employers should consider implementing transitional provisions such as:

• honouring existing rates for deals already in the pipeline
• phasing in new commission rates or targets
• buy-outs or compensatory payments for employees whose earning capacity is reduced
• clearly defined cut-off dates for earnings and accrual

Retrospective changes to commission schemes are almost always unlawful, as they interfere with earnings already accrued or earned under the previous structure.

3. Protecting business interests

Commission schemes often exist in commercially sensitive environments where employees have access to clients, pricing information, live deals, and key revenue streams. Employers can lawfully use contractual tools to protect their business interests, provided the tools are proportionate and clearly drafted.

Clawback clauses for leavers
Employers may seek to reclaim commission where clients cancel after the employee leaves, where revenue is reversed, or where contractual conditions around continued employment were not satisfied. Such clauses must be:

• expressly stated and unambiguous
• linked to legitimate business interests (e.g., avoiding paying commission on unsustained revenue)
• proportionate in timing and scope
• compliant with statutory wage protection

Restrictive covenants
Non-compete, non-solicit, and non-deal covenants can be used to protect commission-related revenue streams. These must be:

• reasonable in scope and duration
• no wider than necessary
• tailored to the employee’s role and influence
• typically limited to 3–6 months in sales environments

Separation agreements
Where employees leave on disputed terms, separation agreements can:

• resolve commission disputes
• provide clarity on final payments
• settle potential unlawful deduction or discrimination claims
• preserve confidentiality and restrain misuse of sensitive commercial information

These agreements provide certainty and reduce litigation risk, particularly where commission structures are complex.

Section D Summary
Section D explains the legal position relating to commission when employees leave or when employers change commission schemes. It highlights the need for explicit contractual terms to govern commission during notice, garden leave, and redundancy, and emphasises the risks of altering commission structures without consultation or consent. It also outlines protective tools—such as clawback clauses, restrictive covenants, and separation agreements—that employers can use to safeguard their commercial interests, provided they are proportionate and clearly drafted. The section reinforces that tribunals will interpret ambiguity in favour of employees and that employers must avoid retrospective changes, indirect discrimination, or practices that undermine trust and confidence.

FAQs

1. Do employees have a legal right to commission?
Employees have a legal right to commission where it is contractual. If the employment contract or commission plan sets out a clear entitlement, formula, or rate, commission becomes part of the employee’s wages under the Employment Rights Act 1996. This means the employer must pay commission once it has been earned or accrued in line with the contractual terms. If commission is discretionary, employees do not have an automatic right to payment, but employers must still exercise discretion lawfully, rationally, consistently, and without discrimination. Discretionary schemes may also become enforceable through custom and practice if applied formulaically and consistently over time.

2. Can employers change commission structures?
Yes, but only within strict legal boundaries. If the commission scheme forms part of the employment contract, employers cannot make unilateral changes without employee consent. Attempting to change commission without agreement may lead to claims for breach of contract, unlawful deduction of wages, indirect discrimination, or constructive dismissal. Even discretionary schemes require employers to act fairly and consult employees before making significant changes, especially where changes could disproportionately affect employees with protected characteristics.

3. How is commission included in holiday pay?
Commission must be included in statutory holiday pay where it forms part of an employee’s normal remuneration. Employers must calculate average weekly earnings using a 52-week lookback period for workers with variable pay. This requirement applies specifically to the first four weeks of EU-derived annual leave. Employers may choose to apply this method to the full 5.6 weeks for simplicity and fairness. Failure to include commission in applicable holiday pay may result in unlawful deduction claims, although backdated claims may be limited by the “three-month gap” rule between deductions.

4. Can commission be withheld if a salesperson leaves?
Commission can only be withheld from a leaver if the employment contract or commission plan contains clear, express, and unambiguous wording allowing this. Employees remain entitled to commission earned or accrued before termination, even if the payment date falls after they leave. For employees working under notice or on garden leave, entitlement typically continues unless restricted by explicit contractual wording. Restrictive interpretations of leaver clauses usually favour employees, especially where commission reflects work done prior to the termination date.

5. Can employers claw back paid commission?
Clawback is lawful only if expressly authorised by the employment contract or commission scheme. Deductions must be clear, specific, and proportionate, and must relate to legitimate business reasons such as client cancellation, non-payment, or error correction. Employers must also ensure that clawback does not reduce pay below the National Minimum Wage outside permitted exceptions. Clawback normally cannot be applied to holiday pay unless explicitly stated in the scheme. Vague or discretionary clawback provisions risk being unenforceable and may breach statutory wage protections.

6. What counts as an unlawful deduction of wages in relation to commission?
A deduction will be unlawful where:

• commission has been earned or accrued and the employer withholds payment
• the contract does not authorise the deduction or clawback
• the employer delays payment without contractual justification
• the employer applies broad or unclear clawback terms outside the scope of the scheme
• the deduction indirectly discriminates against employees with protected characteristics

Once commission qualifies as wages under the Employment Rights Act 1996, employees have strong statutory protection. Employers must ensure payments are made exactly in accordance with the contract and that deductions are expressly authorised and objectively justified.

Conclusion

Commission schemes can be powerful tools for driving performance, motivating employees, and aligning commercial objectives with individual contribution. However, they also represent one of the most legally sensitive areas of remuneration. Ambiguity in scheme design, inadequate documentation, inconsistent administration, or attempts to unilaterally alter commission structures all expose employers to significant risk. For HR teams and business leaders, a clear understanding of the legal framework governing commission—and a disciplined approach to compliance—is essential.

A well-designed commission scheme begins with precise, unambiguous contractual terms. Employers must define how commission is calculated, what constitutes a qualifying sale, when commission is earned, and when it becomes payable. They must also specify any clawback triggers, the treatment of commission during notice or garden leave, and how disputes will be handled. A failure to articulate these elements clearly is one of the most common causes of grievances and claims. Employers should also regularly review scheme documentation to ensure it remains up to date with current case law and evolving business practice.

Proper management of commission payments is equally critical. Employers must administer schemes consistently, track performance data accurately, communicate entitlements transparently, and ensure that decisions around commission—especially where discretion is involved—are made rationally, in good faith, and free from discriminatory impact. Commission that forms part of normal remuneration must also be incorporated into statutory holiday pay calculations for the EU-derived portion of annual leave, using the correct reference periods and following established case law principles.

Leaver scenarios and scheme changes demand particular care. Employers should base all decisions on explicit contractual wording and engage in meaningful consultation before implementing changes. Any retrospective change to remove or reduce accrued or earned commission is almost always unlawful. Introducing changes without proper process can result in breach of contract, unlawful deduction claims, or constructive dismissal. It is also essential that employers consider the equality implications of commission changes to avoid indirect discrimination.

Employers may protect their commercial interests through proportionate and clearly drafted clawback clauses, restrictive covenants, and separation agreements. These tools must be linked to legitimate business interests and tailored to the role and circumstances. When used properly, they provide valuable protection without undermining the enforceability of commission structures or damaging employee trust.

Ultimately, the most effective commission schemes prioritise clarity, fairness, and legal compliance at every stage—design, administration, amendment, and termination. Employers who invest the time to create well-drafted, transparent, and consistently applied schemes not only reduce legal risk but also build trust, stability, and stronger performance within their workforce.

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