Sales Commission Agreement: Everything You Need to Know
A sales commission agreement is a contract between employer and employee that will outline a variety of factors of the nature of their relationship.3 min read
A sales commission agreement is a contract between employer and employee that will outline a variety of factors of the nature of their relationship, including:
- The details of the working relationship
- The term of expected employment
- The commission percentage they will earn as well as any included salaries
A sales commission agreement is an essential tool when hiring a new salesperson into the company. It is also vital if you are entering into a job as a salesperson where a commission will be the payment method.
It can be a benefit to both employer and employee to set up formal terms for their arrangement to avoid any misunderstanding. It is also a good time for an employer to include a non-compete clause if they choose to have one.
A sales commission agreement should be utilized when:
- You hire a new employee who will receive all or most of their pay from a commission.
- You wish to layout all parties rights and obligations.
- You are being hired for a commission position and want a written agreement documenting the employment agreement.
Sales Commission Agreement
There are many crucial sections that a sales commission agreement should include to ensure that both parties understand their rights and obligations and both parties are protected. When creating your agreement, the company will be legally referred to as "employer," and the person being hired will be regarded to legally as "representative." Items that should be addressed in the sales commission agreement should include:
- Authorization - The agreement should give written authorization to the sale representative to sell the goods and services on behalf of the employer. This section can also include any restrictions on the representatives selling such as territories. You will also want to include verbiage indicating that the representative must sell under the employer's pricing structure and require the employer's approval for discounts.
- Documentation - This portion of the agreement states the requirement that a sales representative utilize the company-approved and provides documentation and tools to track their sales and opportunities, recording, and submission.
- Non-Compete - A non-compete section will require the representative to promise not to represent other brands or companies that could be considered direct competitors for a certain period of time after employment has ended.
- Non-Disclosure - The representative will state that they will act in the best interest of the employer and keep confidential information and intellectual property protected at all times. This means that the representative can not disclose anything that would be considered proprietary or confidential to a third party.
- Commission Structure - This section is probably the most important to the representative and will lay out the structure in which their commission will be paid.
- Acceptance - The agreement will end with both parties accepting the agreement by signing and dating.
Standard Exclusive Commission Sales Agreement
A standard exclusive commission sales agreement is an agreement that gives a sales representative exclusive rights to sell a company's products or services. Some of the primary components that go into an exclusive agreement include:
- The names and contact information of the party
- The date the agreement becomes effective
- The selling rights that the representative is entitled to
- The product prices that the representative will be required to sell the product or services at
- How the order will be written and what they are required to contain
- The percentage or amount of commission that will be paid and how it will be affected in the case of a refund
- The training that the representative will be required to undergo before they can sell the product
- The advertising and informational materials that a representative will be entitled to
- The rights and responsibilities the representative had when using the marketing or product images
- The responsibility that representatives have to not assist the competition
- The requirement that a representative keeps business secrets confidential including such areas as customers, suppliers, logistics, finances, research, development, and any other items the employer deemed necessary.
- What would constitute as violations that could lead to the termination of the representative's right to sell the employer's products or services.
- What procedures will need to occur once a seller's rights have been terminated.
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