If you run a sales-driven business, paying your team “commission only” can sound like a win-win: you control costs, and your employees are rewarded for performance.
But in New Zealand, “commission only” pay can get legally tricky fast. The key issue is simple: even if someone’s pay is mostly (or entirely) based on commission, they still usually need to receive at least the minimum wage for the hours they work (unless they fall into a very narrow exception).
This 2026 update reflects current expectations around wage compliance, record-keeping, and clear employment documentation - especially for businesses using modern commission structures (like lead-based incentives, online sales, and hybrid role arrangements).
Let’s walk through what commission-only pay really means in NZ, when it’s allowed, and how to set it up so you’re protecting your business from day one.
What Does “Commission Only” Mean In New Zealand?
In everyday conversation, “commission only” usually means:
- your employee gets paid only when they make a sale (or hit a target); and
- they don’t receive any hourly rate or salary.
In practice, there are a few different commission-based arrangements people lump together:
- Commission as the entire pay (no base wage at all)
- Low base wage + commission (e.g. minimum wage + performance commission)
- Salary + commission (common for account managers and senior sales staff)
- Commission + bonuses/incentives (e.g. weekly KPIs, team bonuses)
From a legal perspective, the most important question isn’t what you call it - it’s whether the employee is being paid at least their minimum legal entitlements for the work they’re doing.
Commission can be a great tool. But it doesn’t automatically replace your wage obligations, and it doesn’t remove your duty to keep proper records or comply with employment law.
Is Commission-Only Pay Legal In NZ?
Sometimes, yes - but many “commission only” setups are not legal in practice once you apply minimum wage rules.
In New Zealand, employees are generally entitled to be paid at least the minimum wage for every hour worked. This expectation comes through the minimum wage framework (including the Minimum Wage Act 1983) and is supported by wage and time record requirements under employment law.
That means if an employee works, say, 40 hours in a week, and their commission for that week works out to less than what they’d earn on minimum wage for 40 hours, you’ve got a problem.
So When Can “Commission Only” Work?
Commission-only arrangements tend to be most defensible where:
- the employee has genuine control over when (and how much) they work;
- they aren’t required to be “at work” or on standby for set hours;
- their earnings are consistently well above minimum wage in real terms; and
- the agreement is crystal clear about how commission is calculated, when it’s paid, and what happens if a sale is refunded or cancelled.
Even then, you still need to be careful. If you treat the person like a regular employee with rostered hours, workplace obligations, and KPIs (even informal ones), it starts looking a lot like they’re “working hours” - and minimum wage expectations follow.
A Common Trap: “They’re Happy With Commission Only”
Even if your employee agrees to commission only, that doesn’t necessarily make it legal. In NZ, employees can’t sign away minimum entitlements.
This is why having a properly drafted Employment Contract matters - it helps you document the arrangement clearly, and it reduces the risk of misunderstandings turning into disputes later.
Minimum Wage, Hours Worked, And The Big Compliance Risk
If there’s one “non-negotiable” legal issue for commission-only pay, it’s this:
You need to be able to show the employee received at least minimum wage for the hours they worked.
That raises two very practical questions:
- How do you define and track “hours worked” for a commission-based role?
- What happens in a slow week (or month) where commission is low?
Do I Need To Track Hours For Commission-Based Employees?
In most cases, yes. Employers in NZ are expected to keep wage and time records. If a commission-only employee later challenges their pay (or a Labour Inspectorate issue arises), you’ll want to be able to point to:
- the hours they worked (or were required to be available);
- what they were paid for the period; and
- how that compares to minimum wage entitlements.
If you can’t prove compliance, it becomes much harder to defend the pay model.
What If Commission Doesn’t Reach Minimum Wage?
Many businesses handle this with a “top-up” approach, for example:
- Pay minimum wage (or an hourly base) as a floor; and
- Pay commission on top as an incentive.
This can still be structured so that your business gets the performance benefits of commission, while reducing the risk that you’ll accidentally underpay staff during quieter periods.
It can also make termination and leave calculations much cleaner (more on that shortly).
How To Structure A Commission Arrangement That’s Fair (And Clear)
A commission model can be completely workable - the key is putting the details in writing, and making sure it matches how the job actually operates day-to-day.
If your “commission-only” employee is expected to attend meetings, be on-site, follow a roster, complete admin tasks, or respond to customer enquiries during set hours, you should assume minimum wage obligations will apply for those hours.
Key Terms To Include In A Commission Clause
Whether commission is the whole pay or additional pay, your employment agreement should clearly cover:
- How commission is calculated (percentage, tiered rates, fixed amount per sale, etc.)
- When commission is earned (on signing, on payment received, after a cooling-off period, etc.)
- When commission is paid (weekly, fortnightly, monthly)
- What happens if a sale is refunded, cancelled, or disputed
- How leads are allocated (important if multiple staff work on the same opportunity)
- Whether commission is payable after resignation/termination (and on what conditions)
- Any caps, thresholds, or adjustments (and how they’re applied)
If you’re relying on commission to drive behaviour, clarity is everything. Unclear commission terms often lead to disputes because employees feel they “earned” commission, while the employer believes it wasn’t triggered yet.
Consider Using A Written Commission Schedule
Many businesses use a “commission schedule” attached to the employment agreement. This lets you update rates or categories (after following a fair process and the contract terms) without rewriting the entire agreement.
If you do this, make sure the contract explains:
- how the schedule works;
- whether and how it can be changed; and
- how changes will be communicated.
Changing commission structures without a proper process can create legal risk - especially if it effectively reduces pay or changes the role significantly.
Commission, Leave, And Termination: What You Need To Watch
Commission-based pay doesn’t just affect payday. It can also affect what happens when someone takes leave, resigns, or is terminated.
Does Commission Affect Holiday Pay And Leave Payments?
Often, yes. Leave pay calculations (like annual holidays) can involve “ordinary weekly pay” and/or “average weekly earnings”, depending on the circumstances.
Where commission is a regular part of earnings, it may form part of those calculations.
This is one reason businesses get caught out with commission-only arrangements: if you treat commission as “extra” informally, but it’s actually a consistent part of wages, it may need to be factored into leave payments.
What About Notice Periods And Final Pay?
When an employee leaves, you’ll typically need to calculate final pay, including any outstanding wages, annual leave entitlements, and sometimes commission earned (depending on the agreement).
If you decide to end employment immediately but still pay out the notice period, that should be handled carefully and documented properly - for example, as payment in lieu of notice where appropriate.
And if there’s any confusion about what’s owed on exit (especially around commission that’s “in progress”), it’s a good idea to get advice early rather than trying to patch it up later.
Be Careful With Deductions And “Clawbacks”
Some commission models try to “claw back” commission if a customer cancels or fails to pay.
This can be workable if it’s clearly agreed to upfront and applied fairly. But unauthorised deductions from wages are a common flashpoint in employment disputes, so the contract needs to be very clear about:
- when commission is considered “earned”;
- when it can be reversed; and
- how any adjustments are calculated and communicated.
Employee Or Contractor: Don’t Use “Commission Only” To Avoid Employment Obligations
Another common issue is businesses trying to pay “commission only” by calling someone a contractor.
Commission-based contracting can be legitimate - but you can’t simply label someone a contractor if, in reality, they work like an employee.
If someone is actually an employee (based on the real nature of the relationship), they may be entitled to:
- minimum wage protections;
- holiday and leave entitlements;
- other protections under employment law; and
- a fair process if issues arise.
If you’re engaging salespeople on a non-employee basis, it’s worth getting the paperwork right upfront with a properly drafted Contractor Agreement, and making sure the arrangement matches how you’ll actually work together.
Why This Matters For Small Businesses
Misclassifying workers can become expensive. It can trigger back-pay claims, tax and KiwiSaver issues, penalties, and reputational damage.
If you’re not sure what category your worker falls into, it’s much easier to sort it out early than to defend it later.
Salespeople might:
- work irregular hours;
- operate remotely;
- use their own devices;
- be responsible for building pipelines over time; and
- have long lead times between “work done” and “sale completed”.
That’s exactly why commission-only arrangements need clean documentation and realistic processes. If the role involves substantial non-selling work (admin, follow-ups, customer support), a pure commission-only model often doesn’t reflect the reality of what they’re doing.
Key Takeaways
- Commission-only pay can be risky in New Zealand because employees generally still need to receive at least the minimum wage for the hours they work.
- Even if your employee agrees to commission only, they usually can’t waive minimum legal entitlements, so the structure needs to be compliant in practice.
- A safer and common approach is paying a base wage (often at least minimum wage) plus commission, so slow periods don’t create underpayment issues.
- Your commission terms should be clearly documented, including how commission is calculated, when it’s earned, when it’s paid, and what happens with refunds or cancellations.
- Commission can affect leave and final pay calculations, so it’s important to structure the arrangement with payroll and compliance in mind.
- Be careful not to misclassify employees as contractors just because you want to pay commission only - the real nature of the relationship is what matters.
If you’d like help setting up a commission structure or reviewing your employment documents, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
