Commission

Meaning & Definition

A commission is variable payment made to employees based on how they performed against specific sales, revenue, or performance targets. It is typically paid to employees who work in sales and marketing roles and can be paid either monthly, quarterly, or yearly, either on its own or in addition to a regular salary.

Important features of Commission

• Encourages staff to reach increased levels in both sales and performance.
• Ties an employee’s pay directly to the company’s earnings.
• Helps corporations manage their fixed cost of payroll.
• Assists with performance-based compensation programs.
• Requires precise accounting for payroll, taxation and other compliance issues.

Compliance Requirements

According to the Payment of Wages Act of 1936, any commission earned by an employee falls under wages and must be paid within a reasonable time.

The Income Tax Act of 1961 treats commissions as either salary or due to the way the employee works, depending on employee’s working conditions.

Under the Employees’ Provident Funds Act of 1952, commissions can be included in the employee’s wage for provident fund purposes.

Whether or not the above is applicable will depend on how the employer structures commissions and the terms of the employee’s employment.