Sales commissions can be a great way to motivate your team and grow revenue - but they can also become a source of stress if the rules aren’t clear from day one.
If you’ve ever heard, “That sale was mine,” or “Why didn’t I get paid commission for that?”, you’ll know what we mean. Most commission disputes aren’t about anyone being “dodgy” - they happen because the business never properly defined what commission is, when it’s earned, and what happens when things change (like refunds, cancellations, or staff leaving).
This guide is updated for current New Zealand expectations and best practice, including what to watch for in modern sales environments (online sales, subscription revenue, shared pipelines, and remote teams). We’ll walk you through how sales commission arrangements usually work, what the law expects from you, and how to set up a practical commission structure that protects your business and is fair for your people.
What Is A Sales Commission (And Why Does It Cause So Many Disputes)?
A sales commission is typically an additional payment (on top of wages or salary) that rewards someone for making sales or achieving revenue targets.
In practice, “commission” can cover a few different arrangements, such as:
- A percentage of revenue (e.g. 5% of the sale value)
- A percentage of gross profit (e.g. 10% of margin, not revenue)
- A fixed amount per sale (e.g. $50 per contract signed)
- Tiered rates (e.g. 3% up to $50k, 5% beyond that)
- Bonuses for hitting targets (often grouped with commission, but technically different)
Commission disputes usually happen because key terms aren’t defined. For example:
- Is commission earned when the customer signs, when they pay, or when you deliver?
- What if the customer cancels, asks for a refund, or doesn’t pay?
- What if two staff members both contributed to the sale?
- What if the salesperson leaves halfway through the deal?
- Is commission calculated on GST-inclusive or GST-exclusive amounts?
- Do discounts or promo codes reduce commission?
When these points aren’t written down, you’re left relying on memory, “company custom”, or informal messages - and that’s where disputes (and relationship damage) can start.
Are Sales Commissions Legally Required In New Zealand?
No - in most cases, New Zealand law doesn’t require you to pay commissions. Commissions are usually an optional incentive that you choose to offer as part of a remuneration package.
But here’s the important part: if you do offer commission, the commission terms can become contractual and legally enforceable.
That’s why getting the paperwork right matters.
Commission Terms Are Often Part Of The Employment Agreement
If your salesperson is an employee, commission arrangements are commonly set out in an Employment Contract or in a commission schedule that the employment agreement incorporates.
Ideally, the agreement answers the “how, when, and what if” questions clearly, so everyone understands what they’re signing up to.
Minimum Entitlements Still Apply
Even where commission is offered, you still need to comply with core employment obligations - including ensuring employees receive at least the relevant minimum wage for all hours worked (depending on how the arrangement is set up).
This is especially important if you’re considering a “commission-only” structure. These arrangements can be high-risk if they result in someone effectively earning less than minimum wage, or if the agreement doesn’t properly reflect the real working relationship.
Be Careful With “Contractor” Salespeople
Some businesses use independent contractors for sales (for example, commission-only lead generators or business development reps). That can work - but only if the relationship is genuinely a contractor relationship.
If someone is labelled a contractor but is treated like an employee day-to-day, you can end up with misclassification issues (which can trigger employment claims and liabilities). If you’re unsure, it’s worth getting advice before you lock anything in - and having a proper Contractor Agreement in place if a contractor structure is appropriate.
How Do You Set Up A Commission Structure That Actually Works?
A good commission structure does two things at once:
- It motivates the right behaviour and rewards performance; and
- It reduces confusion and prevents disputes.
To get there, you want to define your commission plan in a way that is measurable, auditable, and realistic for how your business actually sells.
1. Define What Counts As A “Sale”
This sounds obvious, but it’s often where businesses get stuck. Depending on your industry, a “sale” might mean:
- a signed customer contract
- a paid invoice
- a successful delivery and acceptance
- a subscription that stays active for a minimum period (e.g. 30 days)
If you sell online, you might also need to decide what happens with:
- returns and refunds
- chargebacks
- free trials that convert later
2. Decide When Commission Is “Earned” Versus When It’s “Paid”
In many businesses, commission is earned at one point (for example, when the customer pays), and paid later (for example, in the next payroll cycle).
This distinction matters, because it affects situations like:
- the employee resigning before the commission is paid
- the customer cancelling after the sale is booked
- the deal being recorded in the CRM but payment arriving months later
A clear rule like “commission is earned only once payment is received and the cooling-off period ends” can save you a lot of headaches - but it needs to be drafted properly and applied consistently.
3. Be Crystal Clear On The Commission Calculation
Your commission clause should spell out the calculation method in plain language. For example:
- Is it a percentage of revenue or gross profit?
- Is GST included or excluded?
- Do delivery fees count?
- How do you treat discounts?
- Is commission calculated on the “list price” or the actual price paid?
If you don’t specify this, you leave it open to interpretation - and interpretation tends to favour whoever is unhappy at the time.
4. Deal With Shared Sales And “Who Owns The Account”
Modern selling is rarely a one-person job. One person might source the lead, another might negotiate, and another might manage onboarding.
If shared sales are likely in your business, it helps to define:
- how commission is split (and who decides)
- whether split commission is automatic or discretionary
- what happens if a manager reassigns an account mid-deal
The more your team collaborates, the more important these rules become - otherwise you risk internal conflict, not just payroll confusion.
5. Make Sure The Plan Matches Your Real Sales Cycle
If you have long sales cycles (for example, B2B services, construction, high-value products, or enterprise SaaS), paying all commission “upfront” can be risky if customers later cancel or don’t pay.
In those situations, businesses often use structures like:
- a smaller upfront payment and a second payment on delivery
- commission paid only once invoices are paid
- commission clawbacks if the sale unwinds within a defined period
These can be reasonable - but they must be set out carefully to avoid unfairness or misunderstandings.
What Should A Commission Agreement Or Clause Include?
Whether your commission terms sit inside an employment agreement or as a separate schedule, the goal is the same: everything important should be written down in one place, in terms your team can understand.
Commission terms commonly include:
- Definitions (e.g. “sale”, “net revenue”, “gross profit”, “client”, “territory”)
- Commission rate(s) and whether they change based on tiers or targets
- When commission is earned (the “trigger event”)
- When commission is paid (timing and payroll process)
- Adjustments for discounts, refunds, credits, chargebacks, cancellations, or non-payment
- Rules for shared deals and account ownership
- Clawback terms (if any), including the time period and method
- What happens when the employee leaves (resignation, termination, redundancy)
- Discretion (if you reserve discretion, it needs boundaries so it’s not arbitrary)
- Record-keeping (e.g. the CRM or invoicing system used as the “source of truth”)
In many businesses, commissions sit alongside other important employment terms - like confidentiality and restraints. If you’ve built a strong sales pipeline and client base, it’s worth checking your Non-compete agreement (or other restraint clauses) are appropriate and enforceable for your situation.
Clarity Matters More Than Complexity
A commission plan doesn’t need to be complicated to be effective. In fact, simpler plans are often better - as long as they reflect how your business makes money.
If you’re adding layers (tiers, accelerators, clawbacks, team splits), it’s a sign you should be extra careful with wording. That’s where a tailored clause or commission schedule can really pay off.
Can You Change Commission Terms After They’ve Been Agreed?
This is one of the most common questions we hear: “Can I just update the commission plan next month?”
In short, commission terms aren’t something you can usually change unilaterally if they form part of someone’s agreed terms and conditions.
Whether you can change the commission structure (and how) depends on:
- what the employment agreement says about variation
- whether the commission plan is contractual or discretionary
- how you communicate the change (and whether you consult)
- whether the change is prospective (future sales) or retrospective (past sales)
Avoid Retrospective Changes
Changing the rules after a salesperson has already done the work is where disputes escalate quickly.
For example, if someone closes a deal believing they’ll earn 8%, and you later decide it should be 5%, you could face a claim that you haven’t paid what was agreed.
If you need to redesign your commission structure, it’s usually safer to:
- consult with affected staff
- give reasonable notice
- apply new terms only to sales made after a defined start date
- document the change properly (ideally as a written variation)
Watch Out For How You Describe “Discretion”
Some businesses try to keep flexibility by saying commission is “discretionary”. That can be helpful in some cases, but it can also backfire if:
- commission has been paid consistently in the past (creating an expectation)
- salespeople rely on commission as a meaningful part of their income
- the discretion is exercised inconsistently or without clear criteria
A better approach is often to define the plan clearly, and only reserve discretion for limited edge cases (like correcting errors, dealing with fraud, or resolving genuine conflicts about deal ownership).
How Do Refunds, Cancellations, And Returns Affect Commission?
Refunds and cancellations are where commission plans commonly fall apart - especially if your business sells online, offers subscriptions, or operates in an industry with cancellation rights.
It’s worth thinking through these scenarios upfront, including how they tie into your obligations under consumer law.
Consumer Law Still Applies To Your Business
If you’re selling to consumers in New Zealand, you’ll likely need to comply with the Fair Trading Act 1986 (truthful advertising and no misleading conduct) and, in many cases, the Consumer Guarantees Act 1993 (minimum guarantees around goods and services). That can affect how often refunds occur, and how you communicate offers and “no refunds” policies.
If your advertising or promotions lead to higher-than-normal refund requests, that can create commission disputes unless your plan clearly explains how those adjustments work.
Common Approaches Businesses Use
There isn’t one perfect approach. The right model depends on your product, sales cycle, and customer terms - but common options include:
- Commission is only earned after payment clears (and sometimes after a set period)
- Clawback clauses for refunds within a defined window (e.g. 30 or 60 days)
- Holdback models where a portion of commission is held until the refund window passes
The key is to ensure these rules are set out clearly and applied consistently. If you’re handling customer data as part of the sales process (like storing leads, call recordings, or onboarding documents), it’s also a good time to check you have a fit-for-purpose Privacy Policy in place.
Subscriptions And Ongoing Revenue
If you sell subscriptions (monthly retainers, SaaS, memberships), consider whether commission is:
- a one-off payment on sign-up; or
- paid over time as revenue comes in; or
- a hybrid (smaller upfront + ongoing trail commission).
Make sure the rules match how you invoice and recognise revenue - and how likely cancellations are in the early months.
Key Takeaways
- Sales commissions aren’t usually legally required in New Zealand, but once you offer them, the terms can become contractually enforceable.
- The most common commission disputes happen because businesses don’t clearly define what counts as a sale, when commission is earned, and what happens if a sale is refunded or cancelled.
- A practical commission structure should match your real sales cycle and clearly explain calculations, timing, deal ownership, and any adjustments like discounts or clawbacks.
- Commission terms are often best documented in a written agreement (such as an employment agreement with a commission schedule) so everyone is on the same page from day one.
- If you need to change a commission plan, you should be careful about unilateral or retrospective changes and ensure updates are documented properly and communicated clearly.
- If you use contractors for sales, make sure the relationship is genuinely a contractor arrangement and is supported by a properly drafted contract.
If you’d like help setting up (or reviewing) your commission clauses and sales incentive arrangements, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
