Commission-based Jobs in the UK

Commission-based jobs can be a great way to drive sales, but they also create some of the most common employment disputes for growing UK businesses.

Founders often make the same mistakes: they rely on a verbal promise about how commission will be calculated, they label someone a contractor without checking whether the arrangement really looks like employment, or they forget that minimum wage and holiday pay rules can still apply. When sales slow down or someone leaves the business, those gaps can become expensive very quickly.

If you are thinking about hiring a salesperson, business development manager or recruiter on a commission structure, the legal detail matters before you sign a contract. The key questions are usually practical ones: is the person an employee, worker or self-employed contractor, when is commission actually earned, can you change the scheme, and what happens to unpaid commission on termination? This guide explains what commission-based jobs mean for UK businesses, the legal issues to check before you sign, and the mistakes that commonly trip employers up.

Overview

Commission-based jobs are lawful in the UK, but the arrangement needs to be documented properly and fitted to the person’s true status. A business can pay purely commission in some cases, but that does not remove obligations around employment status, minimum wage, holiday pay, discrimination, or clear written terms.

The right agreement should make it clear how commission is earned, when it becomes payable, what happens if a sale is cancelled, and whether the business can change the scheme later.

• Whether the individual is an employee, worker or genuinely self-employed contractor
• Whether the pay structure complies with National Minimum Wage rules where they apply
• How commission is calculated, approved and paid
• When commission is treated as earned, and whether clawback can apply
• What happens to pipeline deals and unpaid commission when the relationship ends
• Whether the commission terms are contractual, discretionary, or partly both
• How targets, territory, exclusivity and restrictive covenants are handled
• Whether the agreement avoids discrimination risks and unclear incentives

What Commission-based Jobs Means For UK Businesses

Commission-based jobs usually mean a role where some or all of a person’s pay depends on sales, revenue, margin, leads converted, or another measurable result. For UK businesses, the legal issue is not just how much you want to pay. The bigger question is how the overall arrangement works in practice.

A founder may think, “We only pay on results, so this person is obviously self-employed.” That is where businesses often get caught. Status depends on the reality of the relationship, not just the label in the contract.

Employee, worker or contractor?

The first point to settle is status. If you hire someone to work set hours, follow your instructions, use your systems and represent your business as part of your team, they may well be an employee or at least a worker, even if their pay is mainly commission.

If someone is genuinely self-employed, they are more likely to:

• control how they do the work
• have a real ability to send a substitute
• work for multiple clients
• bear some business risk themselves
• invoice for services rather than being paid through payroll in the same way as staff

Status matters because employees and workers can have legal rights that contractors do not, including rights relating to minimum wage, paid holiday, rest breaks, and protection from unlawful deductions from wages. Employees may also have wider rights around unfair dismissal and redundancy once eligibility requirements are met.

Can a job be paid purely on commission?

Sometimes yes, but not always safely. A pure commission structure may be possible for a genuinely self-employed contractor. For employees and workers, you need to check whether the arrangement still complies with National Minimum Wage requirements for the hours worked.

This is a major issue for sales roles. If you hire someone as staff, ask them to attend meetings, complete reports, travel between clients and follow your working patterns, the fact that they only earn when they close a deal does not necessarily protect you if their pay falls below legal minimum levels.

Before you hire your first worker on commission, make sure you understand whether time spent prospecting, travelling, attending training or carrying out admin counts as working time for pay purposes. This is especially important for early-stage businesses trying to conserve cash.

What commission can be based on

Commission schemes vary a lot. Some are straightforward and some are a recipe for argument. The best structure depends on what you want to reward and what your sales process looks like.

Commission may be based on:

• signed contracts
• customer payments actually received
• gross revenue or net revenue
• profit margin
• renewals
• upsells and cross-sells
• team performance
• individual targets or thresholds

Each model creates different risks. If commission is triggered on signature alone, your business may pay for deals that later collapse. If it is only triggered after customer payment, workers may argue they have done the job and should not carry the credit risk. Neither approach is automatically wrong, but the agreement has to say clearly which model applies.

Contractual versus discretionary commission

Commission can be contractual, discretionary, or a mix of both. A contractual scheme gives the individual a clearer right to payment if the stated conditions are met. A discretionary scheme gives the business more flexibility, but discretion is not unlimited.

If your contract says commission is discretionary, you still should not exercise that discretion arbitrarily, irrationally or in a way that undermines trust and confidence in the employment relationship. In practice, fully discretionary wording often causes as many problems as it solves when people have already generated sales and expected to be paid.

For many SMEs, the cleaner option is a written commission scheme with specific calculation rules and a limited right for the business to review or amend the scheme on notice.

Legal Issues To Check Before You Sign

The main legal protection is a clear written agreement that matches what will happen day to day. Before you rely on a verbal promise or a short offer letter, sort out the details that usually lead to disputes later.

1. Status and the right type of agreement

Use the right contract for the actual relationship. If the person will be integrated into your business, managed like staff and expected to work personally, you are likely looking at an employment contract or worker arrangement, not a contractor agreement.

Misclassification can affect more than pay. It may also affect holiday entitlement, termination rights, post-termination restrictions, confidentiality duties and the way commission disputes are handled.

2. National Minimum Wage and working time

If the individual is an employee or worker, check that the total pay arrangement meets minimum wage rules for the hours they work. This matters even where the role is heavily performance-based.

Before you sign, think about:

• whether the person is expected to work fixed hours
• how travel, training, admin and meetings fit into paid work
• whether low-performing months could reduce pay below legal minimum levels
• whether a draw, retainer or basic salary is needed to reduce risk

Some businesses solve this by paying a base salary plus commission. Others use a recoverable draw or minimum guaranteed payment. The right option depends on the role and the person’s status, but the legal point is the same: commission does not cancel minimum wage obligations where those obligations apply.

3. When commission is earned

This should never be left vague. The contract should say exactly when commission is earned, approved and payable.

Key points to define include:

• whether commission is earned on order, signature, installation, invoice, or customer payment
• whether there is a minimum deal size or margin threshold
• who must approve the sale internally
• whether cancelled, refunded or defaulted sales reduce or reverse commission
• the pay cycle and any cut-off dates

This is one of the biggest pressure points when a founder is trying to preserve cash flow. If you do not document the trigger point clearly, you may end up arguing about whether the salesperson was rewarded for effort or for completed revenue.

4. Clawback and adjustment clauses

Clawback can be valid if it is drafted clearly and applied fairly. Businesses often want the right to recover commission where a customer cancels, gets a refund, fails credit checks, or does not pay.

That approach can make commercial sense, but it needs careful wording. If you are dealing with employees or workers, unclear deduction clauses can create unlawful deduction from wages risks. The contract should explain when an adjustment can be made and how it will be calculated.

Before you sign, avoid broad language that gives the business unlimited power to recalculate old payments whenever it wants. That usually creates mistrust and may be hard to defend.

5. What happens on termination

Most commission disputes happen when someone leaves. The agreement needs to say what happens to deals in the pipeline, deals signed during notice, and payments received after termination.

You may want the contract to address:

• whether commission is only payable if the individual is still engaged on the payment date
• whether they are entitled to commission on deals introduced before termination but completed later
• what happens during garden leave
• whether notice can be paid in lieu and how that affects sales targets
• whether post-termination restrictions are needed to protect customer relationships

This is where founders often get caught. A business assumes that if someone leaves, they lose all future commission. The individual assumes they should be paid for all deals they sourced. If the contract is silent, the dispute becomes much harder to resolve.

6. Exclusive service, territory and target setting

Commission roles often depend on who owns a customer, region or lead source. If two people claim the same sale, the scheme needs a tie-breaker.

Your agreement should say whether the person has an exclusive territory, whether house accounts are excluded, how inbound leads are allocated, and who decides disputed attribution. Targets should also be realistic and capable of being measured. A vague target clause can be difficult to enforce and frustrating to manage.

7. Discrimination and incentive design

Commission structures should reward performance without creating unfair treatment. A scheme can create legal risk if it indirectly disadvantages certain groups, for example because of part-time working patterns, maternity absence, disability-related adjustments or access to leads.

Check whether the model works fairly for people who are absent for protected reasons or who need reasonable adjustments. The risk is not just the written formula. The way managers allocate accounts, opportunities and support can matter just as much.

8. Restrictive covenants, confidentiality and client ownership

If your salesperson builds direct relationships with customers, your contract may need post-termination restrictions. These should be carefully tailored and no wider than reasonably necessary.

You should also make it clear that customer data, pricing information, pipeline notes and CRM records belong to the business. That is especially important where someone is treated as a contractor and may use their own devices or systems.

Common Mistakes With Commission-based Jobs

The most expensive mistakes usually come from casual arrangements that seemed practical at the time. A commission role can work well, but only when the paperwork and day-to-day management line up.

Calling someone self-employed without checking the facts

A contractor label does not decide status on its own. If the person works like part of your internal team, a tribunal or court may look past the label.

This often happens in startups where a founder offers “commission only” terms to avoid salary cost, but then expects attendance at team meetings, fixed reporting, exclusivity and close supervision. That combination can undermine the contractor model.

Relying on verbal promises

Sales hires often join based on earnings conversations. If the written contract does not match those discussions, the relationship can become strained quickly.

Before you sign, write down the deal mechanics properly. Do not rely on statements like “we will sort the detail later” or “you will get looked after on the deals you bring in”.

Using a commission formula that nobody can calculate

If your finance team, manager and salesperson each produce a different figure, the scheme is too vague. Complicated formulas may look flexible, but they create distrust and are hard to administer consistently.

Simple drafting is usually better. State the percentage, the trigger event, the exclusions and the payment date in plain English.

Trying to change the scheme overnight

Businesses often want to change commission structures when margins tighten or strategy changes. You may be able to amend a scheme if the contract allows it, but not every change can be imposed without risk.

If commission forms a contractual part of pay, a unilateral cut may create breach of contract or unlawful deduction arguments. Even where a scheme is discretionary, changes should be handled carefully, documented properly and communicated before the relevant performance period wherever possible.

Ignoring holiday pay and other statutory rights

For employees and workers, commission can affect more than monthly payroll. Regular commission may need to be considered when calculating holiday pay in some circumstances.

Founders sometimes assume holiday pay is based on basic salary only. That can be risky where commission is a normal part of remuneration and the person would be discouraged from taking leave if it were excluded.

Failing to deal with leavers and bad debt

This is one of the most common gaps in SME contracts. If someone resigns after sourcing a large customer, your agreement should already say what happens if the customer signs or pays later.

The same applies to customer defaults and refunds. If you want to offset or reverse commission, the contract needs to say so in a way that is clear and workable.

Letting managers make side deals

A manager may promise a special rate, a one-off bonus or an exception for a strategic account. If those side deals are not documented, payroll and leadership may not honour them later.

That creates avoidable disputes and can also create inconsistency across the team. Build in an approval process for non-standard commission arrangements.

FAQs

Can a UK employer pay staff only in commission?

Sometimes, but only if the arrangement still complies with legal obligations. If the person is an employee or worker, National Minimum Wage rules may still apply to the hours worked.

Is a commission-only salesperson automatically self-employed?

No. Status depends on the reality of the relationship, including control, personal service, integration into the business and whether the person is genuinely operating their own business.

Do I need a written commission agreement?

Yes, in practice you should have one. A written contract helps define status, payment triggers, deductions, termination treatment and any right to amend the scheme.

Can I refuse to pay commission after someone leaves?

Only if your contract clearly supports that outcome and the clause is enforceable in the circumstances. If the wording is unclear, disputes are much more likely.

Can commission be clawed back if a customer cancels?

Often yes, if the agreement says this clearly and the adjustment is drafted in a lawful and transparent way. For employees and workers, wage deduction issues should be considered carefully.

Key Takeaways

• Commission-based jobs can work well for UK businesses, but the legal position depends heavily on employment status and the written contract.
• A commission-only model does not automatically make someone self-employed, and it does not remove minimum wage and statutory pay risks where the person is an employee or worker.
• Your agreement should clearly state how commission is calculated, when it is earned, when it is paid, and whether clawback or adjustments apply.
• Termination clauses are crucial, especially for pipeline deals, post-termination payments and notice periods.
• Discretionary commission wording can help with flexibility, but it should still be exercised fairly and documented carefully.
• Businesses should also consider holiday pay, discrimination risks, customer ownership, confidentiality and post-termination restrictions.

If you want help with employment contracts, contractor classification, commission scheme drafting, or termination clauses, you can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.