How To Structure A Commission-Only Sales Role In New Zealand

Commission-only sales roles can be a great way to grow revenue without taking on big fixed wage costs (especially when you’re a small business watching cash flow).

But they can also create legal headaches if they’re not set up properly - from minimum pay issues, to disputes about how commission is calculated, to misunderstandings around “contractor” vs “employee”.

If you’re thinking about hiring (or restructuring) a commission-only sales role in New Zealand, the key is to get the foundations right from day one. That means being clear about what the person is, how they’re paid, what counts as a “sale”, and what happens when things change (or end).

Below, we walk through practical employment law tips and best practices for structuring a commission-only sales role in a way that’s both compliant and commercially sensible.

What Is A Commission-Only Sales Role (And Why Can It Be Risky)?

A commission-only sales role usually means a worker earns money based on sales they generate (or revenue they bring in), and doesn’t receive a guaranteed base salary or hourly wage.

For businesses, the appeal is obvious:

• Lower fixed costs (you pay when revenue comes in).
• Built-in performance incentives.
• Flexibility while you test a new product, market or growth channel.

The risk is that commission-only arrangements can unintentionally breach New Zealand employment law if you treat the worker like an employee but don’t meet minimum employment entitlements (like minimum wage, holiday pay, and leave).

These arrangements also tend to cause disputes because commission is rarely as simple as it sounds. Common flashpoints include:

• Whether commission is triggered at contract signed vs invoice paid.
• Whether commission is paid on GST-inclusive or GST-exclusive amounts.
• What happens when a customer cancels, requests a refund, or doesn’t pay.
• Who “owns” an account when multiple team members touch the sale.
• Whether commission is payable after the worker leaves.

The solution isn’t to avoid commission-only roles entirely - it’s to structure them thoughtfully, document them properly, and run them consistently.

Employee Or Contractor: Get The Classification Right First

Before you lock in a commission-only sales role, you’ll want to decide whether you’re engaging the person as:

• an employee (hired under an employment agreement), or
• a contractor (engaged under a services agreement).

This isn’t just a “label” you choose. In New Zealand, the real relationship matters more than what you call it. If your salesperson looks and works like an employee, they may be treated as an employee (with employee rights), even if you call them a contractor.

A few practical indicators that a salesperson is more likely to be an employee include:

• You set their working hours, location, and how they must do the job.
• They’re integrated into your business (your email address, your systems, your processes).
• They can’t subcontract or send someone else in their place.
• They mainly (or only) work for you.

If you’re genuinely engaging a self-employed salesperson who runs their own business, you’ll usually want a well-drafted Contractor Agreement that matches how the relationship works in practice.

If they’re an employee, you’ll want an Employment Contract that clearly explains the commission structure and any performance expectations.

Best practice tip: If you’re unsure, it’s worth getting advice early. Misclassification can be expensive - back pay, leave entitlements, and disputes can add up quickly.

Can You Legally Pay Commission-Only In New Zealand?

You can use commission-based pay in New Zealand - but the “legally safe” structure depends on whether the worker is an employee or a contractor.

If The Salesperson Is An Employee

If your salesperson is an employee, you need to structure the role so you meet minimum employment obligations.

In practice, the big issue is usually minimum wage. Even if pay is described as “commission-only”, employees still generally need to receive at least the minimum wage for hours worked, measured over the relevant pay period.

This is why many businesses choose one of these models instead:

• Base wage + commission (simpler and lower risk).
• Draw against commission (an advance, with clear rules about how it’s reconciled).
• Commission with a minimum earnings guarantee (so you’re not relying on “maybe they’ll sell enough”).

If you truly want a commission-only structure for an employee, you’ll need to be very careful about how you track hours and reconcile pay so the employee receives at least the minimum wage for each pay period (and you’ll want clear wording in the agreement about how any reconciliation is handled).

Also remember: employees have leave entitlements (like annual leave and sick leave) that need to be handled properly. Commission and variable pay can make leave calculations more complex - but it’s absolutely manageable if it’s documented clearly.

If The Salesperson Is A Contractor

If your salesperson is a genuine independent contractor, minimum wage and employee leave entitlements generally won’t apply in the same way.

However, the commercial risk doesn’t disappear - you still need a strong contract setting out how commission is earned and paid, and you still need to avoid misleading representations in how you advertise or describe the role (more on that below).

How To Draft A Clear Commission Structure (So You Avoid Disputes)

Most commission disputes happen because the parties had different assumptions - not because someone deliberately did the wrong thing.

A well-structured commission-only sales role should answer the “awkward” questions upfront. If you document the structure properly, you’ll protect the business and give your salesperson clarity (which usually improves performance too).

1. Define What Counts As A “Sale”

Start with the basics:

• Is a sale counted when the customer signs?
• When the customer pays?
• When the product is delivered?
• When the customer’s cooling-off period ends (if relevant)?

For service businesses (like marketing agencies, software, consulting, trades), you’ll also want to define whether commission is earned on:

• the first invoice only,
• a set period of invoices (e.g. first 3 months), or
• ongoing recurring revenue.

2. Set Out The Commission Rate And Calculation Method

Spell out exactly how commission is calculated, including:

• percentage vs fixed amount per sale,
• whether it’s calculated on gross revenue or profit,
• whether it’s calculated before or after discounts,
• whether it’s on GST-inclusive or GST-exclusive totals.

Tax note: GST treatment and tax obligations can depend on how your business is structured and how the salesperson is engaged. Consider getting accounting/tax advice so your commission wording (and invoicing/payroll approach) matches your GST and tax position.

If you use different rates for different products, customer types, or sales channels, include a commission schedule (and a process for updating it).

3. Decide When Commission Is Payable

This is where many businesses get caught out. You’ll want to be explicit about the “trigger” and timing, such as:

• Commission is payable only when the customer has paid the invoice in full.
• Commission is paid monthly in arrears (e.g. paid on the 15th for the previous month).
• Commission is paid only after the refund period has passed.

If you’re trying to manage cash flow, “paid on invoice paid” is common - but it needs to be clear and consistently applied.

4. Handle Refunds, Chargebacks And Non-Payment

Decide what happens if:

• a customer requests a refund after commission has been paid,
• an invoice becomes bad debt,
• a contract is terminated early.

You can build mechanisms like:

• clawbacks (repayment of commission),
• offsets (deducting from future commission), or
• no entitlement until payment is received and “stays received”.

Whatever you choose, write it down in plain language - and make sure it’s commercially workable. Overly aggressive clawback terms can destroy morale, while overly generous terms can be expensive if your business has high churn.

5. Clarify Territory, Account Ownership And Split Commission

In real sales environments, multiple people often contribute to a deal.

Your commission structure should deal with things like:

• handover of leads,
• sales support / sales engineering assistance,
• territory changes,
• joint sales calls,
• house accounts vs salesperson-owned accounts.

Even a simple rule (e.g. “commission goes to the person who generated the lead, unless reallocated in writing”) can save a lot of internal conflict later.

Performance Management, Targets And Ending The Arrangement Properly

A commission-only sales role is still a “relationship” you’re managing - and like any relationship, it needs a clear process for when things aren’t working.

Set Reasonable Expectations And KPIs

It’s a good idea to outline performance expectations such as:

• activity targets (calls, meetings, outreach),
• pipeline targets,
• minimum sales targets,
• compliance requirements (e.g. CRM updates, reporting).

Just make sure KPIs don’t contradict the nature of the role. For example, if you want total control over hours, daily activity, and methods, that can point strongly toward an employment relationship (even if you wanted a contractor arrangement).

Be Clear About Notice And Termination

If the salesperson is an employee, termination needs to follow a fair process and the notice rules in the employment agreement. You may also need to consider Payment In Lieu Of Notice if you want the person to leave immediately (this must be handled carefully and in line with the contract and the circumstances).

If the salesperson is a contractor, termination is usually governed by the contract terms (such as a termination for convenience clause and notice period).

In either case, you’ll want the agreement to address:

• whether commission is payable for deals in progress at the termination date,
• whether commission is payable on invoices paid after termination,
• what happens with returned stock, devices, client lists, and CRM access.

Best practice tip: Commission terms should never live only in a spreadsheet or verbal conversation. They should be documented and tied into the worker’s core agreement, so there’s one source of truth.

Don’t Forget These Other Legal Obligations (They Still Apply)

When you’re building a sales function, it’s easy to focus purely on commission and targets. But a commission-only sales role can trigger other legal compliance areas too.

Misleading Recruitment Ads And The Fair Trading Act

If you advertise a role as “commission-only”, make sure it genuinely is, and that you don’t accidentally imply a guaranteed earning level you can’t support.

In New Zealand, the Fair Trading Act 1986 can be relevant where statements made in trade (including around engagement terms and earning claims) are misleading or deceptive. The safest approach is to treat job ads, outreach messages, and interview representations as needing the same care as any other marketing claim.

Practical steps:

• Avoid “OTE” (on-target earnings) claims unless you can justify them.
• Be upfront if leads aren’t provided and prospecting is required.
• Be clear about when commission is paid (e.g. invoice paid, monthly in arrears).

Privacy And Customer Data

Salespeople often handle customer information - names, phone numbers, emails, purchasing needs, sometimes even sensitive data depending on your industry.

If your salesperson is collecting personal information on your behalf, you’ll want your business to have a fit-for-purpose Privacy Policy and internal rules about how data is stored, accessed and shared (especially if they’re using personal devices or third-party tools).

The Privacy Act 2020 expects businesses to handle personal information responsibly. If something goes wrong (like a spreadsheet getting emailed to the wrong person), it can become a much bigger issue than a simple “sales admin” mistake.

Restraints Of Trade And Protecting Your Pipeline

Sales roles often involve relationships and inside knowledge: pricing, leads, deal terms, and customer preferences.

If you’re investing time and money into building a sales pipeline, you may want to consider whether you need a restraint (like non-solicitation or non-compete provisions). These can be tricky and need to be reasonable to be enforceable - but they can be helpful when used appropriately.

If you’re considering this, it’s worth getting tailored advice and, where relevant, a Non-Compete Agreement or well-drafted restraints within the relevant contract.

Key Takeaways

• A commission-only sales role can work well for small businesses, but it needs careful structuring to avoid pay, entitlement, and dispute risks.
• Start by getting the classification right: if the worker is really an employee, you’ll usually need an Employment Contract; if they’re genuinely independent, you’ll want a strong Contractor Agreement.
• For employees, commission-only setups can create minimum wage issues, so many businesses use base + commission, a draw, or a minimum earnings guarantee instead.
• Your commission structure should clearly define what counts as a sale, how commission is calculated, when it’s paid, and what happens with refunds, bad debts, and deal handovers.
• Termination needs to be handled properly, including clarity around post-termination commission and - for employees - notice and potential Payment In Lieu Of Notice.
• Don’t forget the wider compliance picture, including avoiding misleading earning claims (which may raise issues under the Fair Trading Act 1986) and meeting your obligations under the Privacy Act 2020 (including having a workable Privacy Policy if your sales team handles customer data).

If you’d like help setting up a commission-only sales role (or reviewing your current commission plan and contracts), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.