Commission Agreement Template, Free Download 2026

By Jessica Henwick, Editor-in-ChiefLegally reviewed by David Chen, Esq.
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When Do You Need a Commission Agreement?

You are hiring a sales representative or broker and need to formalize the commission schedule, sales territory, quota requirements, and payment timing in a written commission contract form before the salesperson begins generating revenue for your company.

Your company is transitioning from salary-only compensation to a commission-based model and needs a written agreement that complies with California Labor Code 2751 and similar state statutes requiring commission plans to be in writing.

A sales team member is disputing their commission calculation and you need to establish a clear, documented structure for tiered commission rates, residual commission payments, and the circumstances under which a sale is considered "earned" versus "paid."

You want to include a clawback provision that allows the company to recover commissions already paid if a customer cancels, defaults, or returns the product within a specified period. A freelancer agreement handles similar payment protection concerns for non-employee relationships.

Your business uses a draw against commission structure and needs to document the draw amount, recovery terms, and what happens to unrecovered draws upon termination of the salesperson's employment.

You are onboarding independent sales agents who operate in defined territories and need an agreement that addresses exclusivity, lead ownership, commission disputes, and the treatment of commissions on deals in the pipeline at the time of termination. Pair this with a non-solicitation agreement to protect client relationships if the agent departs.

⚠️ Compliance Alert: State wage and hour laws may require that commission-only employees still receive minimum wage for all hours worked. Review your state's Department of Labor requirements to avoid wage theft claims.

📋 State-Specific Note: California Labor Code § 2751 requires written commission agreements that describe the method of computing and paying commissions; the employee must sign an acknowledgment. New York, Texas, and Massachusetts impose similar requirements. Oral commission arrangements in these states are unenforceable and may expose the employer to penalties and double damages.

What Should a Commission Agreement Include?

Commission Structure and Rates

Define the commission schedule including the base commission rate, any tiered commission thresholds that increase the rate as sales volume grows, and whether commissions are calculated on gross revenue, net revenue, or profit margin. Include examples or a rate table to eliminate ambiguity about how commission amounts are calculated.

Sales Territory and Account Assignment

Specify the sales territory by geography, industry, or named accounts. State whether the territory is exclusive or shared and what happens when a deal involves customers outside the assigned territory. Define who receives the commission when multiple salespeople contribute to a deal.

Quota and Performance Requirements

Set the quota that the salesperson must meet and the consequences of failing to meet it, such as reduced commission rates, probation, or termination. Specify the measurement period (monthly, quarterly, or annually) and whether quotas can be adjusted during the term of the agreement.

Draw Against Commission

If offering a draw against commission, specify the draw amount, whether it is recoverable or non-recoverable, and the method for deducting the draw from future commission earnings. State what happens to any outstanding draw balance if the salesperson is terminated or resigns before the draw is recovered.

Clawback and Cancellation Provisions

Define the clawback provision that allows the company to recover commissions paid on deals that subsequently cancel, default, or result in chargebacks. Specify the clawback window, the method of recovery (payroll deduction from future commissions or direct repayment), and any limits on clawback amounts under applicable state wage theft laws.

Payment Timing and Reporting

Specify when commissions are paid (with regular payroll, monthly, or upon customer payment), the reporting the salesperson receives showing commission calculations, and the process for disputing calculations. California Labor Code 2751 requires that the method of computing and paying commissions be documented in writing and acknowledged by the employee.

Post-Termination Commission Rights

Address whether the salesperson is entitled to commissions on deals that close after their employment ends, including deals in the pipeline at the time of termination. Specify any trailing residual commission payments and the cutoff date after which no further commissions will be paid.

Legal Details: Key Clauses in a Commission Agreement

Parties and Purpose
1.1

This Commission Agreement (this "Agreement") is entered into by and between [____________] ("Company") and [____________] ("Sales Representative"). Company engages Sales Representative to promote and sell the products and/or services described in Exhibit A (the "Products") within the territory defined in Section 2.1 (the "Territory").

Territory and Products
2.1

Sales Representative shall promote the Products within the following Territory: [____________]. The Territory [is / is not] exclusive. Company reserves the right to modify the Territory or Products upon [thirty (30)] days' prior written notice. Sales Representative shall not solicit or accept orders from customers outside the Territory without Company's prior written consent.

Commission Structure
3.1

Company shall pay Sales Representative a commission equal to [_____]% of the net revenue from all qualifying sales closed by Sales Representative within the Territory (the "Commission"). Net revenue means the total invoiced amount less returns, discounts, credits, shipping charges, and sales taxes. For the purposes of this Agreement, a "qualifying sale" means a completed transaction for which Company has received full payment from the customer.

3.2

Sales Representative shall also be entitled to: (a) a bonus commission of [_____]% on net revenue exceeding [$__________] in any calendar [month / quarter]; (b) a draw against commissions of [$__________] per month, which shall be recoverable from earned commissions; and (c) [residual commissions of _____% on recurring revenue from accounts originated by Sales Representative for a period of ______ months]. Commission rates may be modified by Company upon [sixty (60)] days' prior written notice.

Payment Terms
4.1

Commissions shall be calculated and paid on a [monthly / bi-weekly] basis, within [fifteen (15)] days after the end of each commission period. Company shall provide Sales Representative with a commission statement detailing all qualifying sales, commission rates, and amounts earned. Sales Representative shall have [thirty (30)] days to dispute any commission statement, after which the statement shall be deemed accepted.

Reporting and Records
5.1

Sales Representative shall maintain accurate records of all sales activities, customer contacts, and orders submitted, and shall provide Company with [weekly / monthly] reports as reasonably requested. Company shall maintain accurate records of all sales, revenue, and commissions and shall make such records available to Sales Representative for review upon reasonable notice.

Expenses
6.1

Sales Representative shall be responsible for all expenses incurred in the performance of duties under this Agreement, including travel, entertainment, office, and communication expenses, unless otherwise agreed in writing. Company shall provide Sales Representative with the following sales materials and support: [____________].

Independent Contractor Status
7.1

Sales Representative is an independent contractor and not an employee of Company. Sales Representative shall be solely responsible for all income taxes, self-employment taxes, and insurance. Company shall not withhold taxes or provide benefits. Sales Representative shall have no authority to bind Company or make commitments on Company's behalf except as expressly authorized in writing.

Non-Compete and Confidentiality
8.1

During the term of this Agreement and for [______] months following termination, Sales Representative shall not directly or indirectly sell, promote, or represent products or services that compete with the Products within the Territory. Sales Representative shall hold in confidence all proprietary information, including customer lists, pricing, and business strategies, and shall not disclose such information to any third party.

Term and Termination
9.1

This Agreement shall commence on [____________] and shall continue until terminated by either party upon [thirty (30)] days' prior written notice. Company may terminate immediately for cause, including fraud, misrepresentation, or material breach. Upon termination, Sales Representative shall be entitled to commissions on all qualifying sales closed prior to the termination date for which payment is subsequently received by Company, subject to Company's right to offset any amounts owed by Sales Representative.

Governing Law
10.1

This Agreement shall be governed by the laws of the State of [_____________]. Any disputes shall be resolved by [binding arbitration under the rules of ____________ / litigation in _____________ County]. This Agreement constitutes the entire agreement between the parties and may be amended only in writing signed by both parties.

Signature Requirements

Electronic Signature

This commission agreement is fully enforceable with electronic signatures under the ESIGN Act and UETA. Both the company and sales representative should sign before the representative begins earning commissions under these terms.

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How to Fill Out a Commission Agreement

1

Enter Company and Salesperson Details

Fill in the company's legal name, the salesperson's name, start date, and whether the salesperson is an employee or independent contractor. This classification affects tax withholding, benefits, and applicable labor laws. If the salesperson is an independent agent, an independent contractor agreement may also be needed.

2

Define the Commission Structure

Enter the commission rate or tiered rate schedule, the basis for calculation (gross, net, or margin), and when a sale is considered "earned." Include specific examples showing how a typical commission is calculated.

3

Set Territory and Quota

Describe the assigned sales territory or account list and enter the quota for each measurement period. Specify whether the territory is exclusive and how overlapping deals between territories are handled.

4

Configure Draw and Clawback Terms

If applicable, enter the draw amount, specify whether it is recoverable, and set the clawback window for canceled deals. Include the maximum deduction amount per pay period that complies with state wage deduction laws.

5

Set Payment and Reporting Schedule

Enter the commission payment date (with payroll, monthly, or upon collection), the format and frequency of commission statements, and the dispute window within which the salesperson must raise calculation errors.

6

Sign and Acknowledge

Both the company representative and the salesperson sign and date the agreement. Under California and other state laws, the employee must receive a signed copy. Retain the original in the personnel file.

Free Template vs Custom Commission Agreement

FeatureFree TemplateCustom (AI or Attorney)
Basic commission agreement structure
Commission rate schedule and territory sections
Clawback and draw against commission clauses-
State-specific compliance (CA Labor Code 2751)CA, NY, IL, and others-
Attorney review and customization-
Digital download (PDF/Word)Commission agreement sample included

Key Facts About Commission Agreement Documents

California Labor Code 2751 requires all commission agreements be in writing.

Draw against commission provides guaranteed minimum payment deducted from future commissions.

Clawback provision allows employer to recover paid commissions if customer cancels.

Tiered commission structure increases payout percentage as sales volume rises.

Commission dispute often arises when agreement fails to define earned vs paid status.

Key Legal Terms in a Commission Agreement

commission agreementCalifornia Labor Code 2751draw against commissionclawback provisioncommission scheduletiered commissionresidual commissionsales territoryquotacommission disputewage theft

When a Free Template Is Not Enough

Free templates cover standard situations, but a professionally drafted commission agreement accounts for state-specific requirements, unusual circumstances, and enforceability considerations that generic forms miss. If your situation involves significant assets, complex terms, or potential disputes, request an attorney-drafted commission agreement with a custom quote based on your situation.

Commission Agreement Template FAQ

What is a commission agreement?
A commission agreement, also called a sales commission agreement, is a written contract that defines how a salesperson, broker, or agent earns compensation based on the sales they generate. It specifies the commission schedule, the method for calculating commissions, sales territory assignments, quota requirements, payment timing, and the conditions under which commissions are considered earned. The agreement protects both the company and the salesperson by creating a clear, documented structure that reduces commission disputes and ensures both parties understand the compensation framework from the start. Download our free commission agreement template for a ready-to-use sample.
Does a commission agreement need to be in writing?
Several states legally require commission agreements to be in writing. California Labor Code 2751 mandates that employers provide employees who earn commissions with a written contract describing the method for computing and paying commissions, and the employee must sign an acknowledgment of receipt. New York, Texas, and other states have similar requirements or case law strongly favoring written commission plans. Even in states without an explicit writing requirement, oral commission agreements are notoriously difficult to enforce because disputes inevitably arise about rates, calculations, and what triggers a "earned" commission.
What is the difference between commission and salary?
Salary is a fixed amount paid to an employee regardless of performance, typically expressed as an annual figure divided into regular pay periods. Commission is variable compensation tied directly to sales performance, meaning the salesperson earns more when they sell more and less when they sell less. Many compensation plans combine both: a base salary provides income stability while a commission schedule incentivizes sales performance. The ratio between base and commission varies by industry Typically, inside sales roles offer 60/40 or 70/30 base-to-commission ratios, while outside sales roles may offer 50/50 or heavily commission-weighted structures.
How is sales commission calculated?
Sales commission is typically calculated as a percentage of the sale price, revenue, or profit margin. A simple flat-rate structure pays the same percentage on every sale, while a tiered commission structure increases the percentage as the salesperson exceeds volume thresholds. For example, a tiered plan might pay 5% on the first $100,000 in sales, 7% on the next $100,000, and 10% on everything above $200,000. Some plans calculate commission on gross revenue while others use net revenue after returns and discounts. The commission agreement should include specific examples showing exactly how calculations work.
What is a draw against commission?
A draw against commission is an advance payment that a company provides to a commissioned salesperson, typically during their ramp-up period or slow sales months. The draw guarantees a minimum income, but it is deducted from future commission earnings as sales are made. In a recoverable draw, the salesperson must repay any unearned draw amount; in a non-recoverable draw, the company absorbs any shortfall. Companies should clearly document draw terms in the commission agreement to avoid disputes about recovery obligations, especially at termination.
Can commission be taken back?
Yes, commissions can be taken back through a clawback provision in the commission agreement, but there are legal limits. A clawback allows the employer to recover commissions that were paid on deals that later cancel, default, or result in chargebacks. However, state wage theft laws restrict how and when employers can deduct clawbacks from an employee's pay. California, New York, and other states limit the amount that can be deducted per pay period and may require employee consent to deductions. The clawback provision must be clearly documented in the written agreement to be enforceable.
What is a clawback provision?
A clawback provision is a contractual clause that allows the employer to recover commissions that were paid on transactions that do not remain closed. Common triggers include customer cancellations within a specified window, returned products, defaulted payments, and fraudulent sales. The provision should specify the clawback window (typically 30 to 180 days after the sale), the recovery method (deduction from future commissions or direct repayment), and any cap on the amount that can be clawed back per pay period under applicable state law. Without a written clawback provision, employers may have difficulty recovering commissions on reversed transactions.
What states require written commission agreements?
California Labor Code 2751 is the most well-known statute, requiring employers to provide all commission-earning employees with a written contract that describes the computation and payment method. New York Labor Law Section 191 requires commission salespeople to receive a written statement of terms. Texas, Massachusetts, and several other states have statutes or strong case law requiring or strongly favoring written commission plans. Even in states without explicit statutory requirements, courts are far more likely to resolve commission disputes in the employer's favor when a written agreement exists, making a written commission contract form a best practice nationwide.

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