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HR FAQ – is it legal to hire commission only sales people?

I’ve been asked to explain the position on commission only arrangements with sales people so here goes.  I don’t want my comments to be misinterpreted so let me just say that this post is in no way intended to put people off employing sales staff but it does explain the main options involved.

It’s a common catch 22 scenario.  You need to grow your business but you can’t do it all.  You know that you could grow the business quicker if you had a dedicated salesperson but there’s only one snag.  You can’t actually afford to pay them a salary.  So, a commission only arrangement sounds very attractive indeed – they are rewarded for their results and you don’t have to pay them anything if they don’t deliver.  Brilliant.

There’s just one problem.  It’s not legal to have an employee and only pay them commission, unless you guarantee that the commission equals or exceeds the National Minimum Wage.  Otherwise you will be in breach of NMW regulations.  So in other words, you can call it commission but it needs to be guaranteed commission so in effect, it’s a salary.

Pros

  • Becomes part of your team
  • Buys into and becomes part of your company culture
  • If you choose the right person, they can be a huge asset to your business

 Cons

  • Receives a basic salary regardless of the amount of effort they put into selling your product/service
  • Entitlement to paid holiday, statutory sick pay and Employer’s National Insurance Contributions (NICs)

The alternative to employing a salesperson is to find someone who is genuinely self-employed who will invoice you for the commission they’ve earned by selling your products or services.   By genuinely self-employed I mean someone who meets HMRC’s criteria and there is no doubt as to their employment status.  The pros and cons are effectively the opposite of those listed above but if you want results quickly without the additional commitment required, this may be a suitable option.

Employee or self-employed salesperson?  The choice is ultimately up to you but at least make sure that your decision is a well-informed one – give us a call on 01487 815720 to chat through your options.

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