How commission is calculated
Flat: commission = sales × rate ÷ 100
Marginal tiers: commission = Σ (sales inside each tier × that tier's rate)
Whole-amount tiers: commission = all sales × rate of the tier the total falls in
Recoverable draw: pay = the larger of the draw and (commission − draw owed)
A tier's upper limit counts as part of that tier: with a first tier "up to $50,000", sales of exactly $50,000 stay at the first rate.
Worked example: $120,000 on a three-tier plan
The plan pays 5% up to $50,000, 7% from $50,000 to $100,000 and 10% above that.
| Slice of sales | Amount | Rate | Commission |
|---|---|---|---|
| $0 to $50,000 | $50,000 | 5% | $2,500.00 |
| $50,000 to $100,000 | $50,000 | 7% | $3,500.00 |
| Above $100,000 | $20,000 | 10% | $2,000.00 |
| Total | $120,000 | $8,000.00 |
If the same plan pays the whole amount at the tier reached, all $120,000 earns 10%, or $12,000. The gap is big, so it is worth knowing which kind your plan is.
Worked example: a recoverable draw over two months
You have a $2,000 monthly recoverable draw. In month one you earn $1,500 of commission. You are paid the $2,000 draw and owe $500. In month two you earn $4,000. The $500 is repaid first, and you are paid $3,500. If month two had brought only $2,200, you would be paid the $2,000 draw again: $500 of the debt is repaid, but $300 of new shortfall is added, so you owe $300.
With a non-recoverable draw, month one still pays $2,000 and nothing is carried forward. Month two pays the $4,000 you earned.
Results are gross pay before taxes and deductions. To track a recoverable draw over several months, carry the "draw still owed" figure from one period into the next.
Questions people ask
How do I calculate commission?
Multiply the sales amount by the commission rate. $48,250 of sales at 6.5% is 48,250 × 0.065 = $3,136.25. For tiered plans, each slice of sales is multiplied by its own tier rate and the results are added.
What is the difference between marginal and whole-amount tiers?
With marginal tiers, only the sales inside each band earn that band's rate, like tax brackets. With whole-amount (retroactive) tiers, reaching a higher tier pays its rate on every dollar. $120,000 of sales on 5% / 7% / 10% tiers pays $8,000 marginal but $12,000 whole-amount. Check your plan document for which one you have.
What is a recoverable draw?
An advance against future commission. If your commission is below the draw, you are paid the draw and the shortfall is carried forward; later commission repays it before you receive anything above the draw. A non-recoverable draw is a guaranteed minimum that never has to be paid back.
Do I have to repay a recoverable draw if I leave?
It depends on your written commission agreement and your state's wage laws. Many employers do not collect an unpaid balance when someone leaves, but some agreements say they can. Read your plan and ask HR before assuming either way.
Is commission taxed differently?
Commission is wages. Employers often withhold federal income tax on it as supplemental wages, which can make the withholding look higher than on your base pay. This calculator shows gross commission before any tax.