What is a commission policy?
A commission policy is the company-wide rulebook for commission. It sets the rules that apply to every rep and every plan: who is eligible, when commission is earned, how deals are credited and split, when it is paid, how statements and disputes work, how clawbacks and corrections are handled, what happens when someone leaves, how plans can change, and who approves what. Rates and targets live in the commission plan; each rep's personal terms live in their agreement.
Our free Word template gives you all twelve sections with clause text, [brackets] for your own values, options to choose between and short guidance notes. Below, we explain how a policy differs from a plan and an agreement, walk through every clause, and show how the policy works on a real statement.
Download the commission policy template (Word, free)
The template and this article are general guidance, not legal advice. Commission, deductions from pay and plan changes are regulated differently in each country and US state. Adapt the template to local law and have it reviewed by local employment counsel before you use it.
The template is part of our free commission and sales compensation templates. For a short definition, see commission policy in our glossary.
Key findings
- 21.8% of open sales job ads say the role pays commission or OTE (517 of 2,375 ads from 879 employers, recruitment agencies excluded; Prowi jobstore analysis, 2 November 2026).
- 42.0% of those commission ads promise uncapped commission (217 of 517). An uncapped promise makes the rules on earning, crediting and clawbacks more important, not less.
- 1.2% of commission ads say when commission is paid (6 of 517). The rules reps care about most after they sign are not in the ad, so they need to be in the policy.
- 0% of commission ads mention clawbacks, overpayments or repayment terms (0 of 517). If the policy does not set those rules, nothing does.
- $4,800 is the payout on our worked statement, after a split, a correction and a clawback, with every line traceable to a clause in the policy.
How is a commission policy different from a commission plan and a commission agreement?
The policy holds the shared rules that are the same for everyone and rarely change. The plan holds the numbers for one role in one year: rates, quotas, accelerators. The agreement is the individual rep's signed terms. Small companies often combine all three in one document, but separating them means you only rewrite the plan each year, not the rules around it.
| Document | Answers | Applies to | Changes | Typical content |
|---|---|---|---|---|
| Commission policy | What are the rules? | All reps and all plans | Rarely; reviewed yearly | Earning event, crediting, payout timing, disputes, clawbacks, leavers, changes, approvals |
| Commission plan | How much, for what? | One role or team, one plan year | Every year | Rates, tiers, quotas, accelerators, caps, SPIFFs |
| Commission agreement | What does this rep get? | One rep | When the rep's role or terms change | Plan, OTE, start date, signature, reference to the policy |
| Commission statement | What did the rep earn this period? | One rep, one period | Every period | Deals, rates, corrections, clawbacks, payout |
The documents work as a chain. The agreement refers to the plan and the policy, the plan uses the policy's definitions, and the statement applies all three. If you want the other links in the chain, use our commission plan template, our commission agreement template and our commission statement template.
When the documents disagree, the template's clause 1.4 settles it: the plan wins over the policy, the rep's agreement wins over both, and local law wins over all of them where it gives the rep better terms. Choose a different order if you need to, but write one down.
Does every company need a commission policy?
Any company that pays commission to more than a couple of people benefits from one. Without it, rules that should be the same for everyone end up in separate plans and emails, and they drift apart. The bigger the team and the more countries you employ reps in, the more a policy is worth.
| Company | Without a policy | With a policy | How to use the template |
|---|---|---|---|
| Startup, 1 to 5 reps | Rules live in the founder's head and in offer letters | One place for the rules before the team grows | Fill in clauses 1, 4, 6, 7, 8 and 9; keep it to four pages |
| Scale-up, 10 to 30 reps | Each manager handles splits and disputes their own way | Same answer to the same question across teams | Use all twelve sections; add the approvals table |
| Mid-size, 30 to 100 reps, several countries | Local practice differs; exceptions are undocumented | One core policy with local addenda | Keep the core policy; add a short local annex reviewed by counsel in each country |
What is in the free commission policy template?
The template has twelve sections, a version table at the top and a sources page at the end. Each section has numbered clauses, fields in [brackets], options marked [Choose: ... / ...] and a guidance note that you delete before issuing the policy.
| Section | What it settles | What you fill in |
|---|---|---|
| 1. Purpose and scope | Who and what the policy covers; which document wins | Company name, countries, excluded groups |
| 2. Eligibility | Eligible roles, new hires, role changes, leave | Roles, start rule, ramp or guarantee |
| 3. Plan year and periods | Plan year, calculation period, attainment period | Dates, month or quarter, issue deadline |
| 4. How commission is earned | Earning event, qualifying deals, basis, advances | Signature, invoice or payment; CRM fields; basis |
| 5. Crediting and splits | Deal owner, splits, overlays, transfers | Split rule, stage for transfers, decision maker |
| 6. Payout timing | When and how commission is paid | Payroll date, holdback if any |
| 7. Statements and disputes | Statement content, approval, dispute deadline | Approvers, days to object and answer |
| 8. Clawbacks and corrections | Errors both ways, clawback events, offset limits | Clawback window, events, offset percentage |
| 9. Leaving the company | Commission after the last day, negative balances | Post-exit window, stage, balance rule |
| 10. Plan changes | Annual plans, mid-year changes, notice, no retroactive cuts | Notice days, pro-rating method |
| 11. Governance and approvals | Policy owner, approval matrix, exceptions, records | Names and roles, retention period |
| 12. Acknowledgement | Rep confirms receipt | Version, signatures |
How do you fill in the template?
Start from your current plans and how commission is actually calculated and paid today, then write the rules down as they should be. Most of the work is deciding, not writing: the template already has the clause text. Plan on a few hours for a small team and a few weeks with review for a company in several countries.
- Gather your current plans: collect every plan, offer letter and email that sets commission rules, and list where they disagree.
- Check the data sources: confirm which CRM fields and finance data will decide earning, crediting and clawbacks.
- Fix the calculation rules: choose the earning event, basis, period and splits, and write a worked example for each.
- Design the statement: decide what each rep sees every period, including corrections and clawbacks as separate lines.
- Agree approvals: fill in the approval matrix in section 11 and name the policy owner.
- Connect to payroll: fix the payout date and how approved amounts reach payroll in each country.
- Review and sign: have counsel review the policy where reps are employed, issue it with the plans and collect acknowledgements.
Clause by clause: what each section does and what to fill in
This is the part most templates leave out. For each section, we explain why it is there, what to fill in, and what to watch for in the US, the UK and the EU.
1. Purpose and scope: who does the policy cover?
Why it is there: a policy that does not say who it covers will be argued about the first time a contractor, a partner manager or a rep in a new country asks whether it applies to them. Clause 1.4 also decides which document wins if the policy, the plan and the agreement disagree.
What to fill in: your company name, the countries covered, and the groups that are excluded. Commercial agents and contractors usually have their own agreements, and in many countries commercial agents are covered by separate rules. Keep the precedence order unless counsel advises otherwise: plan over policy, individual agreement over both, and better local terms over everything.
Watch for: in the EU, the components of pay must be given to employees in writing (Directive (EU) 2019/1152, Article 4). In California, commission contracts must be in writing and set out how commissions are computed and paid (Labor Code § 2751). Make sure the agreement refers to the policy so the policy is part of the written terms.
2. Eligibility: who earns commission, and from when?
Why it is there: eligibility questions come up every time someone joins, changes role or goes on leave. Without a rule, each case is decided by whoever is asked, and two people in the same situation get different answers.
What to fill in: the eligible roles, whether a new hire joins from day one or the first of the next month, whether new hires get a ramp or a guaranteed amount, when a role change takes effect, and how targets are adjusted for leave. Use the same role names as in your HR system.
Watch for: pay during sick leave, parental leave and holidays is regulated in many countries, and a policy cannot override it. If commission is part of the pay that must continue during leave or holidays, check how it is calculated. Our ramp period entry explains ramps.
3. Plan year and periods: when is commission measured?
Why it is there: the plan year and the calculation period decide when attainment is measured and when amounts can be paid. Mixing them up is a common source of errors, for example paying monthly on an annual target without a rule for the year-end reconciliation.
What to fill in: the plan year dates, whether commission is calculated per month or per quarter, and the period over which targets are measured. Clause 3.4 sets a deadline for issuing new plans and says the previous plan continues if the new one is late. That protects both sides when the planning process slips.
Watch for: if you pay monthly on an annual target, write a true-up rule. Otherwise the December statement will contain surprises.
4. How commission is earned: signature, invoice or payment?
Why it is there: the earning event is the most important definition in the policy. It decides when the rep has a right to commission, how many clawbacks you will need, and in some places whether an amount paid early can be recovered later.
What to fill in: choose the earning event, list the CRM fields a deal needs to count, define the commission basis (invoiced amount, first-year value or gross margin), and list what is not commissionable. Clause 4.4 is optional: use it if you pay before the earning event, so early payments are clearly advances.
| Earning event | Cash risk for the company | Clawbacks needed | Rep waits | Best for |
|---|---|---|---|---|
| Signature | High | Many: cancellations and non-payment | Shortest | Short sales cycles with low cancellation rates |
| Invoice | Medium | Some: non-payment and credit notes | Medium | Most B2B companies; one number finance also uses |
| Payment | Low | Few: refunds only | Longest | Long payment terms or customers with credit risk |
Watch for: in the US, the line between an advance and earned commission matters. A California appeals court allowed an employer to advance commissions before all conditions were met and charge back the excess against future advances (Steinhebel v. Los Angeles Times Communications, 2005). That depended on the written plan defining exactly when commission was earned.
5. Crediting and splits: who gets credit for a deal?
Why it is there: most commission disputes are about crediting, not about rates. Who owned the deal, who helped, and what happens when accounts move between reps. A clear crediting rule settles these before they become disputes.
What to fill in: the source of truth for deal ownership (usually the CRM owner at the earning event), how splits are decided and approved, whether overlay roles reduce the owner's credit, what happens to open deals when territories move, and who decides disagreements and how fast. The template caps splits at 100% per deal, which prevents the most expensive crediting error. See split commission for common split models.
Watch for: splits decided after the deal closes. Require them to be recorded before the deal is marked won.
6. Payout timing: when is commission paid?
Why it is there: reps plan their lives around payday. A clear date, and a rule for amounts that are late because data is missing, removes a steady stream of questions to finance.
What to fill in: which payroll the commission for a period is paid with, and whether you use a holdback (a share of commission held until the end of the quarter to cover clawbacks). Delete clause 6.4 if you do not use a holdback. See payout frequency for monthly and quarterly options.
Watch for: some countries and US states set deadlines for paying wages, and earned commission is often treated as wages. Check those deadlines before you choose a payout date that is two or three payrolls after the period closes.
7. Statements and disputes: how does a rep check and object?
Why it is there: a statement the rep can check, and a clear way to object, prevents small errors from turning into formal complaints. The approval step also stops errors before money leaves the company.
What to fill in: who approves statements before payroll, how many days a rep has to object, how fast the company answers, who the rep can escalate to, and how far back errors are still corrected. The template uses 30 days to object, 10 working days to answer and 12 months for late corrections. Our guide to avoiding commission disputes has more on dispute processes, and commission dispute defines the term.
Watch for: a dispute deadline cannot take away a claim the rep has under law. Clause 7.4 says so. Use the deadline to surface errors early, not to block them.
8. Clawbacks and corrections: how are mistakes and cancellations handled?
Why it is there: errors happen, and customers cancel. A policy that says how both are handled, in advance, is the strongest footing for recovering money in most countries and the best protection against a surprise deduction.
What to fill in: the clawback window (for example 90 days), the events that trigger a clawback, and the maximum offset per period (for example 50% of the commission earned that period). Clause 8.1 corrects errors both ways, so underpaid reps are made whole too. Clause 8.4 rules out deductions from base salary unless the law allows it and the rep has authorised it in writing. For detailed clawback rules, use our commission clawback policy template as an annex.
Watch for: deduction rules differ a lot. In the US, deductions are limited by the FLSA and by state law, and many states require written authorisation. In the UK, a deduction needs a statutory basis, a contract term or prior written consent, with an exception for overpayments of wages (Employment Rights Act 1996, sections 13 and 14). In most EU countries, deductions need consent or a clear legal basis. Our guide to recovering a commission overpayment covers the rules country by country.
9. Leaving the company: what is paid after the last day?
Why it is there: leavers are where commission disputes get expensive, because the relationship is ending and there is no future commission to offset against. Deciding in advance what happens to late deals and negative balances avoids negotiating it with every leaver.
What to fill in: whether commission is paid with the final pay or on the normal date, whether deals that close after the last day earn commission (and if so, within how many days and from which pipeline stage), how commission during notice or garden leave is calculated, and what happens to a negative balance.
Watch for: in the US, federal law does not require immediate final payment, but some states do (US DOL, Last Paycheck), and deductions from final pay often need written authorisation. In Europe, final pay is protected like other pay. Many companies simply write off small negative balances. See commission upon termination.
10. Plan changes: how can plans and targets change?
Why it is there: plans change every year, and targets sometimes change during the year. A policy that says how, with what notice and with what protection for commission already earned turns each change into a routine process instead of a negotiation.
What to fill in: the notice period for changes that reduce expected commission (the template uses 30 days, or longer where the law requires it), and how attainment is measured when a target changes mid-year: separately before and after the change, or against a blended annual target. Clause 10.4 says changes never reduce commission already earned.
Watch for: in the UK, contract changes generally need agreement or a flexibility clause used reasonably, and staff must be told in writing within a month (GOV.UK). In the EU, changes to written terms must be documented at the earliest opportunity (Directive (EU) 2019/1152, Article 6). Our guide to changing sales targets mid-year has worked examples.
11. Governance and approvals: who decides what?
Why it is there: this is the section most often missing. Without it, exceptions are approved by whoever is asked, and nobody can later explain why two reps were treated differently. That matters more under the EU Pay Transparency Directive, where pay decisions need to rest on objective criteria. See our guide to the directive and commission.
What to fill in: the policy owner, the approval matrix (new plans, mid-year changes, exceptions and SPIFFs, statements, disputes), where exceptions are recorded, how long records are kept, and when the policy is reviewed.
Watch for: approvals given after the fact. Clause 11.3 requires exceptions to be approved before the deal closes or the period starts.
12. Acknowledgement: does the rep need to sign?
Why it is there: a signed acknowledgement shows the rep received the policy and which version applied. In some places it is effectively required: California requires a signed copy of the commission contract and a signed receipt from the employee (Labor Code § 2751).
What to fill in: the version number and the signatures. Collect a new acknowledgement whenever you issue a new version.
How does the policy work on a real statement?
Here is one rep's March statement under a policy filled in with the template's example values: earning at invoice, splits recorded in the CRM, corrections both ways, a 90-day clawback window and a 50% offset limit. All amounts are in USD and illustrative.
| March statement line | Amount (USD) |
|---|---|
| Commission on deals invoiced in March (clause 4.1) | $5,400 |
| 50% split credit on a shared deal (clause 5.2) | $900 |
| Correction of a February rate error (clause 8.1) | -$300 |
| Clawback of a January deal cancelled within 90 days (clause 8.2) | -$1,200 |
| Payout | $4,800 |
How the lines come about: the rep's March invoices total $54,000 at a 10% rate, so $5,400. A shared deal of $18,000 at 10% is $1,800, split 50/50, so $900 each. In February, a rate of 11% was used instead of 10% on $30,000 of sales, so $300 is corrected. A $12,000 January deal at 10% earned $1,200 and was cancelled in March, within 90 days, so it is clawed back. The deductions total $1,500, which is less than 50% of the $6,300 earned in March, so the offset limit is not reached. The payout is $5,400 + $900 - $300 - $1,200 = $4,800.
Every line can be traced to a clause. That is the practical test of a policy: if a statement line cannot be explained by pointing to a clause, the policy has a gap.
Worked example in EUR: a rep who leaves
A rep on 10% leaves on 30 June. The policy pays commission on deals invoiced by the last day with the final pay, pays commission on deals that close within 60 days if they were at the negotiation stage or later on the last day, and writes off a negative balance.
| Item | Facts | Rule | Result (EUR) |
|---|---|---|---|
| Deal invoiced 20 June | €40,000 | Clause 9.1: earned before the last day | 4,000 with the final pay |
| Deal closed 15 July | €25,000, at negotiation stage on 30 June | Clause 9.2: within 60 days and at the required stage | 2,500 on the normal date |
| Deal closed 10 September | €30,000 | Clause 9.2: more than 60 days after the last day | 0 |
| Negative balance from a May clawback | €600 | Clause 9.4: written off | 0 |
Without clauses 9.2 and 9.4, each of these items would be negotiated with the leaver, usually after they have already started somewhere else.
How does the policy apply to different roles?
The same policy covers every role, but different clauses matter most for each. The table shows where to look when you fill it in.
| Role | Clauses that matter most | Typical choice |
|---|---|---|
| SDR or BDR | 4 (what counts), 8 (disqualified meetings) | A meeting counts when held and accepted by the AE; reversed within 30 days if disqualified |
| Account executive | 4 (earning event), 5 (splits), 8 (clawbacks) | Earned at invoice; splits recorded before close; 90-day clawback |
| Account manager | 4 (basis for renewals and upsell), 5 (account transfers) | Basis is the uplift on renewal; transfers credited by stage |
| Sales manager | 5.3 (overrides), 11 (approvals) | Override paid under own plan; manager cannot approve own statement |
| Solutions engineer or overlay | 5.2 and 5.3 (splits and overlays) | Overlay credit does not reduce the deal owner's credit |
What should you localise in each country?
Keep one core policy and add a short local annex where the law requires something different. The areas that most often need local wording are deductions, final pay, plan changes, pay during leave and holidays, and the language the policy must be written in.
| Topic | US | UK | EU and Nordics |
|---|---|---|---|
| Written terms | Some states require written commission contracts, e.g. California | Written statement of employment particulars, updated when terms change | Pay components in writing (Directive 2019/1152) |
| Deductions and clawbacks | FLSA floor plus state rules; written authorisation often required | Statute, contract term or prior written consent; overpayment exception | Consent or clear legal basis; protected minimum |
| Final pay | State deadlines; some require immediate payment | Everything earned up to the last day | National rules; protected like other pay |
| Plan changes | Prospective, documented, under the plan's terms | Agreement or reasonable flexibility clause; written within one month | National rules; material changes may need notice |
| Pay during leave and holidays | Mostly state and company policy | Statutory rules on holiday pay | Often statutory; commission may be included |
Check each annex with local employment counsel. The template's guidance notes point to the main rules, but they are a starting point, not advice.
Edge cases the policy should cover
The policy and an old agreement disagree
Existing reps may have agreements written before the policy. Clause 1.4 says the agreement wins. If the old agreement is worse for the rep than the new policy, apply the better terms. If it is better, honour it until you agree a change.
A rep works in two countries
Decide which country's law governs the employment and add the relevant local annex. Do not assume the policy can apply one country's rules to someone employed in another.
An acquisition brings in a second commission scheme
Run both schemes until the end of the acquired company's plan year, then move everyone to the policy with proper notice. Changing an acquired team's commission mid-year is a plan change and follows section 10.
The new plan is not ready on 1 January
Clause 3.4 keeps the previous plan running until the new one is issued. That avoids a gap where nobody knows what applies.
A deal does not fit any rule
Treat it as an exception under section 11: approve it in writing, record it, and decide whether the policy needs a new rule at the next review.
Common mistakes
- Putting rates in the policy. Rates change every year; the policy should not. Keep rates and targets in the plan.
- No earning event. "Commission on sales" does not say whether a sale is a signature, an invoice or a payment. Every other rule depends on it.
- Clawbacks without limits. A clawback clause with no window and no offset limit is hard to defend and harder to accept.
- Deductions from base salary by default. In many places this needs written authorisation. Offset against future commission instead.
- No rule for leavers. Every departure becomes a negotiation.
- No approval matrix. Exceptions pile up and nobody can explain them later.
- Not referring to the policy in the agreement. If the agreement does not mention the policy, the policy may not be part of the rep's terms.
- Never reviewing it. Review the policy every year when plans are renewed, and whenever the law changes.
To check how your current plan and policy hold up, try our free commission plan health check.
How Prowi puts the policy into practice
In Prowi, the policy's rules become rules in the system. Commission is calculated live from your CRM and ERP data, reps see their earnings in the mobile app and on the web, corrections and clawbacks appear as lines on the statement, and every period goes through approval before the amount is added to the rep's balance and passed on to payroll. Book a demo to see your own policy rules running on your data.
FAQ
What should a commission policy include?
Purpose and scope, eligibility, plan year and periods, how commission is earned, crediting and splits, payout timing, statements and disputes, clawbacks and corrections, leaving the company, plan changes, and governance and approvals, plus an acknowledgement. Our free template covers all twelve.
What is the difference between a commission policy and a commission plan?
The plan sets rates, targets and accelerators for one role in one year. The policy sets the shared rules around all plans, such as when commission is earned, how disputes and clawbacks work, and who approves changes. The plan changes yearly; the policy rarely does.
Do employees have to sign a commission policy?
It is good practice everywhere and in some places close to required: California, for example, requires a signed commission contract and a signed receipt. At minimum, have the commission agreement refer to the policy and collect a signed acknowledgement of each version.
Can a company change its commission policy?
Yes, but changes that reduce expected pay usually need notice, and in some countries agreement. Changes should only apply from a future date and never reduce commission already earned. Section 10 of the template sets out a notice period and a no-retroactive-cuts rule.
Is the commission policy template free?
Yes. Download the Word file and adapt it freely. It is a starting point, not legal advice, so have it reviewed by local employment counsel before you use it.
Sources
- Directive (EU) 2019/1152 on transparent and predictable working conditions, Articles 4 and 6
- Directive (EU) 2023/970 on pay transparency
- California Labor Code § 2751 (written commission contracts)
- Steinhebel v. Los Angeles Times Communications, LLC (Cal. Ct. App. 2005)
- US Department of Labor: Last Paycheck
- UK Employment Rights Act 1996, section 13 and section 14
- GOV.UK: Changing an employment contract
- Prowi jobstore: 2,375 open sales job ads from 879 employers (recruitment agencies excluded), collected 29 October to 2 November 2026; 517 ads state that the role pays commission or OTE. Aggregate keyword analysis in English and the main European languages; no employer is named.
This article and the template are general information, not legal advice. Check with local employment counsel before you use the policy.