Consultant’s Corner: Transitioning to a Commission Pay Structure

Consultant’s Corner: Transitioning to a Commission Pay Structure

Question: How do I go about hiring a sales team to work on commission instead of salary? Is it legal for me to have a person working for me that gets paid nothing?

Minimum Wage Regulations

The following information from the Department of Labor indicates that outside sales jobs are not subject to minimum wage laws and could possibly receive no pay other than earned sales commissions:

Wages and Hours Worked | DOL.gov

Converting Sales Staff from Salary to 100% Commission

Of course, many businesses use manufacturer reps or other independent sales reps; however, we assume that you are planning to retain sales employees and not switch to independent reps/contractors. Without any employee contracts or company policy restrictions, you may be able to legally change the compensation structure for your sales staff to a form of 100% commission, though this will likely be a sensitive issue and could be disruptive to your sales staff.

Got Business Questions?
Get unlimited online business consultation. Learn More

The salary structure has become more popular for retailers and other types of businesses. Also, a base-versus-commission structure is common. Often small and other businesses with volatile or less predictable sales have difficulty attracting and retaining 100% commission sales staff; however, companies with extensive sales history may be in a position to demonstrate to their current salespersons how a 100% commission structure should not significantly reduce their compensation from their current salaries and gives them the opportunity and incentive to make more money by selling more.

To help assess a sales staff compensation structure change and consider a fair commission rate for your salespersons, you can locate discussions and market salary information on sales rep commissions at websites like the following:

How to Pay Your Sales Staff

The Best Ways to Pay Your Sales Staff | BusinessWeek

How Employee Compensation Works: howstuffworks.com

Market Compensation Information

Salary Expert | SalaryExpert.com

Search Salaries Nationwide | Salary.com

About the author

Bill Wortman

Bill Wortman is the Chief Business Consultant for GoSmallBiz.com, with over 40 years of business experience. In addition to 12 years consulting small business owners, Bill’s professional career includes a big-eight CPA accounting firm, national consumer finance, big-three automotive manufacturing, Arby’s fast food, marketing, and other industries. He’s held multiple executive-level positions and fulfilled the role of CFO at large, publicly held (NYSE, NASDAQ, and AMEX) corporations. In addition, he’s been an owner of private ventures involving residential real estate development and a General Motors new car dealership.

Leave a Comment

Comment (required)

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Name (required)
Email (required)