Sales Compensation Plan – Draw Against Commission

When you bring a new sales representative into a territory, he will often ask about a “draw.”  The first time you hear the term, you may not know what it is or why it’s important.  A draw is a pay advance against expected earnings or commissions.  It can be important to both your sales representative and your company, but for different reasons.

Importance to Your Sales Rep

Selling high-priced, complex products or services can involve a lengthy sales cycle.  From first contact through the close of a sale, months may elapse.  The time needed to develop a fully productive territory can range from as few as three months to a year or more.  During this ramp-up period, your sales rep may experience severe personal cash flow shortages.  His or her base salary is usually significantly less than the total expected compensation plus commissions haven’t kicked in yet.  To help your sales rep get through this initial period, you may pay your rep a draw – an advance against future commissions.

Sales cycles can also be seasonal.  In the utility industry, energy demand is highest during the summer and winter months; it is significantly lower during the spring and fall.  As a result, companies that service the power generation equipment for utilities experience a well defined seasonal sales cycle.  Sales reps earn much greater commissions in the spring and fall months; summer and winter month commissions can be near zero.  Draws can help smooth out your rep’s seasonal cash flow in these situations.

The draw provides several benefits to your sales rep:

  • Provides a “living wage” during the period when a territory is being developed and commissions have not yet been earned.
  • Reassures your sales rep that the company has faith in his or her ability to be successful in the territory.
  • Smooths cash flow across seasonal earnings.

Importance to Your Company

As a company, you have two key interests when placing a new sales representative in a territory.  First, you want your sales rep to succeed, developing relationships and driving sales.  Second, you do not want to lose the substantial investment your company makes in hiring and training a new sales representative.

By paying a draw, you can help promote these interests.  The draw reduces your sales rep’s cash flow concerns.  Instead of worrying about meeting monthly cash flow obligations like rent or mortgage payments, your sales rep can focus on learning the territory, developing customer relationships and moving customers along the sales cycle.  Without immediate cash flow concerns, your sales rep is also less likely to look for a new job which is less risky from an income perspective.  The draw reduces your sales rep’s perceived income risk and keeps him or her focused on the job – selling your products and services.

Recoverable vs. Non-recoverable Draws

Draws can be either recoverable or non-recoverable.  Recoverable draws are loans against future commissions or bonuses.  Each month during the draw period, you pay your sales rep the draw amount. If your sales rep earns commissions that are less than the draw amount, you pay your rep the commissions.  However you only pay enough draw so that the commissions plus the draw total the amount of the full draw.   The outstanding draw amount accumulates from month to month.  When earned commissions exceed the draw, use the excess commissions to repay the outstanding draw.  Once the accumulated draw is repaid, all commissions are paid to the sales representative.

In the event that a sales representative leaves your company owing an outstanding draw, most companies will write off the outstanding debt.  It is very difficult, if not impossible, to collect monies paid to a departed employee.  Some companies will deduct the draw amount the sales rep owes from other amounts the company would normally pay, such as unused vacation, severance, etc.  However, before withholding benefit payments, check with a labor attorney to ensure you meet local regulatory requirements.

Non-recoverable draws are also loans against future commissions or bonuses.  However, a non-recoverable draw guarantees your sales representative a minimum level of income for each commission period.  If earned commissions are less than the draw amount, your sales rep receives the draw amount.  No accumulated draw is carried to the next commission period.

Recoverable draws are more advantageous for your company.  Non-recoverable draws are more advantageous to your sales rep.  There is a trade-off.  How much risk is the sales rep willing to accept to work for your company versus how much is your company willing to pay your sales rep?

Time Limits

Draws should have a time limit.  The length of the draw period should give the sales rep enough time to establish his or her territory plus the time needed to repay the accumulated draw.  Usually, this works out to one to two sales cycles.

Draw Amounts

The amount of the draw can vary by sales representative or by territory.  I generally look at several factors when determining the draw amount.

  • On Target Earnings (OTE) – What are the OTE for the sales rep?  An aggressive draw can bring the rep’s base salary plus draw to 85% or more of OTE.
  • Territory – What do I expect the territory to generate in revenue and commissions?  Based on this information, I may increase or decrease a planned draw amount.
  • Sales Rep Experience – How quickly do I expect the sales rep to get up to speed?  How much revenue or commissions do I think this particular sales rep will generate?  Again, using this information, I will target a draw equal to 65%-80% of my expectations.
  • Market Expectations – What draw amount and for what time period will it take to get the sales rep to agree to work for my company?  Depending on the competitiveness of the market and how badly I want a particular sales rep on my team, I’ll increase or decrease the planned draw amount.

As with all sales compensation issues, there are no right or wrong answers when determining your draw structure.  You need to consider the goals of your business, the level of risk (draw repayment) you are willing to assume, and how much competition exists for attracting the best sales team you can afford.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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  1. Hi,
    I came across your site when i google a specific line in my company’s contract. I would really like some clarification and you seem to be the best person to go to! So here goes.

    I am currently on a draw and receive the same amount each month. I was told when i started that i needed to “pay back” that amount BEFORE i received any commissions. It has changed a few times since in the last year (my boss was once very generous and didn’t stick to the contract and found herself in a world of hurt) so now we must abide by the contract that commissions will be paid out after a “placements” 6 month date. We guarantee our clients a 6 month probationary period. The confusing part. I have earned 70K in total commissions and earned 50K in total draw in this 1 year period. However because only 40K of the total commissions have earned their 6 month period I have been told that i am 10K BEHIND and need to beat my draw (at that yearly date) in order to receive any commission. I was told that if at the time of our last paycheck was 50K and my total “6 month” commission was 55K then i would receive only 2K (subtracting the $3K that i get monthly from my draw).. Clearly in favor of the company and one sided but does that stipulation of the “40-50K mathematical equation” need to be in our contract?? The famous line to which i found your site is this “Company will pay Employee a draw (as a non-refundable advance against any Commissions) “.. Please any help in explaining this would be much appreciated. As it looks now, November, i need to continue to make not only $3K to pay back my “draw” but then 3-5K on top so that i can balance at zero by June and then hopefully be consistent in placements over the next 6 months so that i can actually start getting paid what little commission i have brought it. Which will be my 2 year mark.

    thank you for taking the time. I can see that i’m not the only one with this question.

  2. David,

    I am in the process of negotiating a comission agreement with a new employer. This will be my first commissioned sales position, so I have a rookie question.

    Can I ask to have the commission structure guaranteed for period of time? If so, how many years is reasonable?


  3. Hi. I am the VP of Marketing for a printing company. I was just wondering how Much a draw should be. I’ve brought in our Company in the first year, over $150,000 in sales. Anyway I am paid hourly plus I get commission every two weeks, if I hit over $1500 in sales & collecting in 2 weeks. Anything over 1500 is when my commission kicks in at 20%. For Instance: Collected $3000- minus the $1500 (draw) =$1500 left x 20% commission= $300 for me.
    I make $12 an hour at 60 hours every 2 weeks. Which is $720 gross in 2 weeks. My draw is $3000 a month. ($1500 every 2 weeks) My base pay is $1440 a month. Is the Draw supposed to be more than double my base pay? If I collect $1000 I don’t see a dime. I actually have to sale and collect over $5000 in 2 weeks just to get a decent commission. So my question is how much should my draw be every 2 weeks? I am the #1 Sales Rep too. Other Reps don’t have a draw. They too get base but + straight 20% commission. And I am the only Sales rep with no other duties. Any suggestions would really help me. Thank you.

  4. There is no formula for how much a draw should be. However, there are some factors that go into a business person’s decision to set a draw. These include:
    • How much does my sales person need to meet their basic living needs, such as rent, food, car payments, etc., and still sell for my company?
    • How much can a sales person realistically make selling my company’s services and earning commissions under the compensation plan?
    • What other benefits am I providing to the sales person (i.e., health insurance, car allowance, expense account, etc.)?
    • How long will it take a new sales person to get fully up to speed in the territory?
    • How much revenue or margin (profits) do I expect my sales person to generate, now and when fully engaged?
    • How much do my competitors pay their sales people?
    • How much do I need to pay my sales people to ensure that they don’t leave for other opportunities?

    The bottom line is that negotiating a draw is like negotiating a salary and other benefits. It’s between you and your manager (or VP of sales or company owner, etc.). The relationship needs to benefit (make sense) both of you. You need to know that the company is paying you fairly and earning opportunities are realistic. The company needs to know that you contribute more value (profits) to the company than you cost (base + draw or commissions + benefits).

  5. Johnny,

    Yes, you can ask for a guaranteed commission. This is called a “draw.” Draws can be guaranteed for any period of time, although they are generally set for the time it will take for you to get up to speed in your territory. How long will that take? Given that you are new to sales and, I assume relatively new to the business, I would set the draw period to last 2-3 times as long as a typical sales cycle. So, if it takes a rep 3 months to close a deal (initiation through final sale), then I would set the draw period for a minimum of 6-9 months. The longer the draw, the more faith your employer has in your success. Keep in mind, that you earn either commissions or draw, not both at the same time. The amount of commissions paid is offset by the amount of the draw paid.

    Also, when negotiating your draw guarantee, I recommend that you have the company guarantee your draw on a monthly or quarterly cycle WITHOUT carrying the outstanding draw amount into future periods. Each new cycle, your outstanding draw amount should reset to zero.

  6. I have a question for you. I work in sales in Indiana and if a customer pays with a credit card over 500.01 we(sales reps get charged a fee for the customer using their credit card for payment. Example the total amount was $8963.50 with a gross profit of $4925.05 the fees added up to $269.10 my commission for that was $246.35. Is this legal for them to take money away from us sales reps because the customer wanted to pay with their credit card?

  7. Heidi,

    Many companies pay commissions on net sales or on the margin (gross profit) of the sales. What you describe is a way of paying commissions on net sales. Net sales is equal to gross sales minus discounts. In the case of credit card fees, they may be considered a discount on the sales price. Therefore, commissions may be calculated on the revenue the company receives after the credit card fees are taken into account. I see nothing illegal with this arrangement, but it should be spelled out in the compensation plan.

    Please check with your state department of employment or labor for definitive regulations in your area.

  8. I was with a real estate company for about two months when a medical emergency in the family caused me to leave. I was on a recoverable draw and had yet to earn any commission to begin to pay the draw down. My questions are about whether I’m required to pay back the draw. In the offer letter and contract I signed, the draw was said to be paid back through commission. I was to go through a probationary period of four months during which time I would receive the draw. After four months, I would begin to pay down the draw with any commission I earn. There is no language about what happens if I leave the company before I earn commission. The owner wants me to pay back the draw. Without that specific language in the contract about how to pay back the draw, am I required to do so? Also, the company is based in one state, I live in another, and did all my work in a third different state. Are there different laws about recoverable draws, and in my situation, which state would have pre-emption?

  9. Hi
    I have a insurance client who hired two sales people. He hired one on commissions and salary, the salary was to manage the sales people, the commissions he paid a draw for almost 3 years trying to give her time to start earning enough commissions to pay the draw back, each month the commissions were put into payroll and the net was taken back to pay the advance back, of course the employee quit leaving an outstanding advance of $24k can we 1099 the employee for the advance? Next employee was just commission sales, but also received advance to live on, left company owing $20k can we 1099 the employee or do we need to put into W2’s

  10. David,

    I have a question on commission payments. This is for named accounts. Typically if there are annuity type sales in the named account before a new rep takes over would the new rep normally receive the ongoing commission payments? Commissions are paid monthly based on Gross Margin. In addition, if the rep has a Gross Margin goal do you think the Gross Margin amount (monthly) would go towards this goal?

  11. I’m looking at going to a lot thats offering a $2000 draw and comission of $200.00 per sale regardless of selling price. This seems odd to me. Since a vehicle may cost more than 50,000, how would that fall under the min 15 percentile. I live in ca.

  12. My brother works at a dealership and his weekly draw is $400, say he accumulates an outstanding balance due to this draw and is unable to close a deal and eventually leaves, will he owe the dealership the outstanding balance?

  13. I have a sales rep with a non recoverable draw. My question is, does the clock reset after one year? My rep wants to start the new year with new sales going against the draw but the prior year commission he gets paid in the new year. I have always reset the clock and any prior years sales commission that comes in after the new year goes toward the new year draw.

    My only reservation is that he is a long term employee and probably isn’t going to leave the company so I’m thinking I will help him out. Thoughts?

  14. Our company hires 10-99 sales reps in retail/event style environments. Can we do draws for 10-99 reps? If so, how would it differ?

  15. If the employee doesn’t cover the draw with commissions over the calendar year, how does that impact future years? WE have an employee with a 20k draw. Our commissions are 20% so he needs to exceed 100k to get past the draw. He billed 78k in 2015. What is appropriate for this year? Should he have a cleaned slate or should the threshold now be the 22k he owes for 2015 + the 100k for 2016? He is a valued employee and we think he has potential.

  16. Are there tax implications that make the draw more attractive than having several big commission checks throughout the year?

  17. I work on 100% commission and receive a 500.00 weekly draw, which is paid back from future commissions. I can not understand why my commission is used to pay back a draw for holidays when the store closed, or when I am expected to attend an informative vendor seminar for a day or even 2 or 3. I work for a retail store that also manufactures. The sales force owes their draw for their Christmas day off (..Thanksgiving, Easter) while everyone else gets paid holidays. How is this legal? Thank you!

  18. Check with your tax advisor about tax implications of a draw versus commission checks. In the end, there should be very little difference. The draw serves to smooth out your cash flow while commission distributions can be very lumpy (feast some months, famine others).

    The only time I can think that a draw would affect your tax situation is when you are earning your commissions in one tax year and being paid the commissions in the following tax year. In this case, your draw would serve to increase your income in the year when your tax rate is lower and reduce your income (commissions minus outstanding draw amount) in the year when your tax rate is higher. However, I think this situation is likely to be less common. As I said, check with your tax advisor to review your particular situation.

  19. You can do draws with 1099 reps as well, but you’ll have less leverage recovering the draw if they don’t produce. Before providing a draw, you will want to check their credit risk or view the possible loss of the paid-out draw as a cost of doing business.

    As with any compensation agreement, review your plans with an attorney to ensure you’re in compliance with state and local regulations.

  20. Regarding draws, the rules are whatever you have negotiated and put in place with your sales rep. Unfortunately, many people have little experience with draws and have not framed them with terms and conditions.

    Most recoverable draws do not reset. That is a condition normally associated with a non-recoverable draw. With a non-recoverable draw, you can reset after a day, a week, a month, quarter, year, whatever. It’s up to you and what makes sense for your business and your employee. You can also set your draw to recover only against commissions. Or, you can make the draw non-recoverable for a period of time and pay commissions on top of the draw. In this case, I would make the draw decreasing over time as commissions increase. It eases the pain as the sales rep establishes his territory.

    The structure of a draw is limited only by your imagination and what’s acceptable to your business and your sales rep.

  21. Obligation to repay a draw upon leaving employment depends on your state. I recommend that your brother-in-law check with his state’s department of labor. In New York, the company cannot require repayment of the draw. They may ask for repayment, but they cannot force it. Your state may be similar or may be different. Please check with the state or a local labor lawyer.

  22. In my experience, the “annuity” sales and associated commissions go with a territory. So, if a new rep takes over the territory, s/he would also assume responsibility for the annuity sales. Responsibility means you must continue to provide customer service and re-sell the customer regularly to maintain the relationship. With the responsibility should also come the commissions (and quota).

  23. A draw is not compensation for effort or time worked. It is a loan against commissions. Sales people are paid commissions (usually a percentage of revenue or gross profit) on the sales they close. Therefore, on days that you are not selling, not closing business, you are not earning money. Since the company does not pay you for anything except the sales you produce, and if you produce you should earn much more than hourly or salaried peers, the company does not owe you anything. If you want to be paid for time away from selling, you may need to negotiate that separately.

  24. A company can administer their draw according to their needs and their employees’ needs. With respect to the 4.4K (20% of the 22K) the employee owes, given his value and potential, if you hold him to paying it back, is he likely to stay or leave? Do you want to extend goodwill or an olive branch to this employee?

    You can structure your draw as fully recoverable (it’s a loan and the employee has a full obligation to repay – check with a labor lawyer in your area to determine if this conforms with local laws), recoverable against commissions (a loan that can only be repaid by earned commissions) or non-recoverable (draw provides a minimum level of income, does not have to be repaid, but commissions only kick in after an agreed-upon level of production is met). Draws can also be various combinations of the above. Draw structures are limited by your imagination and what the parties agree to.

  25. I receive a recoverable draw if my commission doesn’t hit a certain dollar amount. My question is can they tax the draw money? I understand that technically it is a “loan” but right now I am taxed on the disbursed draw funds and taxed again on the funds they recover. Is that legal? I thought that a “loan” which is repayed should not be taxed, especially since it will not be included in my W2.

  26. The IRS and most, if not all, states treat a draw as income. Therefore it is taxable and subject to withholding. However, it all comes out even when you file your tax return. If you have enough commissions to cover the draw, you will pay taxes only on the amount you earned. If you do not cover your draw with commissions, but still repay the draw, then your income will be reduced by the amount you repaid. If you earn commissions, but don’t cover the draw and you have an outstanding amount at the end of the year, then you will pay taxes on the commissions you earned plus the additional draw you received over and above the commissions. In any event, the taxman will get what you owe.

    If you have concerns about your specific situation, I recommend that you speak with an accountant or tax specialist. My comments are only a layman’s perspective based on my understanding of the law. I do not offer legal advice.

  27. hello,
    Can a non-recoverable draw, be conditioned upon the successful completion of the probationary period? In other words, if the employee does not successfully complete the probationary period, can the employer recover commission advances from the final paycheck?

    Kind regards

  28. Karen,

    The answer to your question is very much dependent on where the sales person works or lives. In some states, such as New York, the outstanding draw is not recoverable if an employee leaves the company. It is treated as regular income. In other states, the employer may be able to recoup the draw. I recommend that you get legal advice from an attorney who specializes in employment law in your local area.


  29. Hi David,
    Do you have any resources for examples of draw against commission agreements? The internet isn’t on my side for this!

  30. Laurie, Most draw against commission agreements are pretty simple. Often, they are only one or two lines included in an offer letter. However, I prefer to include the following in draw offerings:

  31. Draw amount and frequency – for instance, $2000 per month.
  32. Length of draw – draw will be paid for X months
  33. Maximum outstanding draw – outstanding draw will not exceed $xx,xxx.
  34. Draw recovery (repayment) terms – when does draw get repaid and how? Repaid from commissions only? Upon leaving position? Upon leaving company?
  35. i work for a car dealership i’m paid 100 per day draw based on 22 working days in a month. works out to about 2200 i get 3 weeks paid vacation and they still deduct the full draw from my commission is that legal

  36. Yes, deducting draw from your commission, even though you are on vacation is legal. A draw is not a salary. Technically, a draw is a loan from the company to you in advance of the commissions you earn. It sounds like at the car dealership you are working on 100% commission basis. On the days you take vacation, you are not selling and therefore you are not earning commissions. The draw, however, since it is a loan against future commissions, must be repaid.

  37. Hi David, I have a question- my contract reads as so:

    In consideration for the Specified Services, the Corporation will pay the Contractor an amount equal to
    fifty percent (50%) of all net advertising revenue generated by the Contractor pursuant to this Agreement (the “Commission”). The Corporation will pay the Contractor the Commission according to the following schedule:

    (a) a non-refundable payment of $3,000.00 per month (the “Draw”); and
    (b) a monthly payment if any equal to the amount of the Commission to date minus the Draws to date (the “Reconciliation”).

    To me, this reads that I get a check each month for $3,000. Then after I sell $3,000 worth of product we split the sales 50/50. So, if I sell $4,000 worth of product I am paid $3,500. Does that sound right or am I misreading?

  38. Liz,

    The contract is a bit fuzzy, but not in the area that you are unsure about. The question I would want clarified is whether the draw accumulates over time and therefore the reconciliation is applied to the total outstanding draw or does the draw reset every month (non-recoverable draw) and so you start with a zero draw balance at the start of each month. The latter is preferred.

    With respect to your question, the commission on $4,000 of sales is $2,000. The $2,000 commission is then applied against your draw. Therefore, you would not be entitled to any additional payment for the month. You’ve already been paid $3,000 in that month although you’ve generated commissions of only $2,000. Think of the draw as a loan against future commissions. To earn a reconciliation check in a month, you would need to sell more than $6,000 of advertising, assuming that your outstanding draw at the beginning of the month is zero.

  39. I am a sales rep for a printing company. I currently make $125,000 a year Draw. My commissions are 7% on offset jobs and 15% on large format. What do I need to sell a month in order to make my draw?

    Thank You

  40. My situation is a bit different, I don’t work for a big company, I work with one person, so this is not so cut n dry. I’m a recruiter, he is a business partner.

    I’m Independent Contractor but I was going to have to leave for a guaranteed salaried job due to waiting too long to get paid from a client or candidates not accepting in the end. So he has given me a recoverable draw, just because we have worked together for a few years and he knows what I am capable of bringing in; the lack of placements is not due to productivity which he knows.

    I had several situations that were very out of the ordinary this year, candidates that would not accept offers, not due to not closing them, either, I was closing on day one and he knew that as well and also candidates that I had to pull from clients

    Anyway he lowered my commission %, none of this is in writing (so of course we trust one another).

    But I am just wondering if it is fair to lower my %, after all, the reason I need a draw is to help make ends meet, which it’s not even close to doing that anyway. Also situations such as ours is typically a 50/50 split. I have made a couple of big placements last month , no cash-in yet until Oct and another in Nov, my draw is just under $5k , add another 2 draws , I will be coming in $6k due to my lower % , I will still be in a draw situation, until the 2nd cash-in, which due to sliding scale for 2nd placement in the month I get a higher %, but, still if I don’t have more in my pipeline immediately after cash-in, I will still be in the hole! Also there is a bonus shouldn’t the bonus be paid out immediately, in my mind it should not be part of the commission check, it is a bonus! Do you agree?

  41. Here is my situation:
    Quota 480 GP
    I have a salary draw of 6K per month non-recoverable draw against commission (3k per 2wk pay period)
    Commission is 25% of GP
    Comm Accelerator of 30% of GP higher than 480K

    How would you interpret this plan? Should the 6K per month draw accumulate or reset every pay period or monthly? Secondly, is the draw recoverable even though it clearly states non-recoverable?

    Example: month 1: I sell 20K in GP = 5K commission, I get paid 6K
    month 2: I sell 30K in GP = 7.5K commission, I get paid 6.5K because I was in the hole 1K from previous month. shouldn’t I get paid the 7.5K since this is a Non-recoverable draw and then reset for next month? If the draw accumulates and I have to pay it back before I see commission, shouldn’t it be termed a recoverable draw?
    Since I get paid every two weeks, it is even more complicated (it should reset every two weeks, correct, since that is a pay period) but it is being treated as a recoverable draw instead of non-recoverable… do I not understand the sales plan correctly?

    what are your thoughts?

  42. Bob, you need to review the written sales plan closely… it is written, isn’t it? The plan should spell out exactly how the draw works. Normally, a non-recoverable draw is set up so that you are guaranteed a minimum income level for the draw period. When I set up a non-recoverable draw, I define such that commissions for a draw period are only paid when they exceed the amount of the draw. When the commission exceeds the draw, I pay the amount of commission that is in excess of the draw paid. So, in a sense, the draw is recoverable but only against earned commissions.

    With respect the draw reset, different companies have different philosophies. Some companies will carry the draw over from period to period. You then need to repay all accumulated draws with earned commissions before you are actually paid commissions over the draw amount. The challenge here is if you get too far in the hole, you will have a very difficult time catching up. It can feel like indentured servitude! The logic, though, is that the company is “carrying” you until you are fully productive in the territory. If you leave before paying back the outstanding draw, in your case, the draw would be non-recoverable against your assets or other monies they owe you.

    A friendlier, but more expensive, approach to resetting the draw is to view the draw as a minimum level of compensation that the company needed to provide so that you would join their sales team. Each month, they would pay you a base salary plus a draw equal to expected commissions or a percentage of expected commissions. If you cover the draw in a month, that’s great. Then they pay you the excess commission over the draw. If you don’t cover, then the company simply pays the base salary plus the draw for the month. The next month you start over.

    The questions you must answer for yourself are: (1) What draw structure did both parties agree to when you join the sales team? Was the agreed upon structure documented in writing to you? (2) If the draw structure is not what you thought you agreed upon, what options are you willing to pursue to correct the structure, adjust your expectations, or find new opportunities?

    Good luck.

  43. Ella, it’s not always about what’s fair because what you perceive to be fair may be very different from what your employer perceives to be fair. That doesn’t make either of you wrong. You’re just looking at the same situation from different perspectives.

    Every time your employer changes commission percentages or timing on payment of bonuses, he is in effect making you a new offer. You need to decide if you will accept the offer, make a counter offer, or leave the deal. Just don’t let your employer change the terms on transactions that you’ve already closed or are about to close. If your employer regularly changes the terms of your deal, consider registering transactions as you identify them and gaining agreement that the registered transactions fall under the terms of agreement currently in place at the time of registration.

  44. Brent,

    How much you need to sell to cover your draw depends on the mix of your sales. Below is a range.

    If you sell:
    Sales Mix Revenue to Cover
    100% offset $1,785.714
    75% offset/25% Large $1,388,888
    50% offset/50% Large $1,136,364
    25% offset/75% Large $961,538
    100% Large format $833,333

  45. David, I worked for a flooring co 4 years draw was 7000 month . I recently left co. I have a negative draw balance of 59,000 . Co. has turned me over to lawyer for collections what options do I have . Co. is located in colorado springs , co

  46. Stephen,

    I recommend that you gather together all documentation you have regarding your compensation, especially the draw. Make sure you include letters, agreements, compensation plan documents, and emails. In addition, write up all conversations you can remember about compensation that you had with your employer. Include as many specifics as possible – date, what was discussed, context, commitments, parties present. Finally, calculate the number of hours you worked for your company during the period you were collecting the draw. This may become important to determine if they owe you minimum-wage compensation.

    First, go to your state department of labor and ask them if your draw is considered compensation or a loan against commissions. Different states treat draws differently depending on the circumstances. Next, find a good labor attorney that specializes in employment law who can advise you on your options. Your attorney will be in a much better position to lay out what you owe or not owe.

    An attorney will cost you money, but given the $59,000 at stake, it will be money well spent.

  47. I work for a technology company. when I was hired they gave me an $80K draw (6,666/mo.) the company pays out commissions 25% of profit. I was told to expect that I wouldn’t sell much (if anything) my 1st year due to ramp up and that at the end of yr 1 the company would just write off and draw deficit.

    So 2 months in to the role I land a large account that generated $200K in profit for the company — which should = $50K in Commissions to me. when reviewing my commissions with our local VP, she informed me that because the company provided me a draw, I am not eligible for the 25% commission rate until I have FIRST paid back my draw from commissions which would be calculated at a reduced rate of only 20% instead of the full 25%.

    to put that in perspective If I were on a straight commission plan (no draw) in order to repay $80K of Draw I would need to generate $320K gross Profit. However, because I took a draw I need to generate $400K in Gross Profit (at the reduced commission of 20%). this essentially works out to be $20K in lost commissions to me just for taking a draw!!!

    My position is this: the draw is essentially a loan (in my case a loan of $80K) and by making me repay at a lower rate the company is essentially charging me 25% interest on that 80Kloan (20K divided by 80K).

    Since you’ll probably ask… yes the 2 rates are mentioned in my comp plan which I did sign– but that doesn’t necessarily make it legal right???

    Could such a blatantly one sided policy as this be considered Usury? is there some legal footing here that I should consider.

    I appreciate any feedback that you can provide.
    Many Thanks in advance.

  48. Robert,

    The cost of your draw is certainly heavy. I recommend that you try to come to a negotiated settlement with management on this deal. Given that you signed the comp plan agreeing to these terms, you are in a difficult position. From where I sit, I see the following course of action.

  49. Consult with a labor attorney in your state to get an opinion on whether the terms can be considered usurious. They may not be if the company calls the charge an accommodation fee or some other fee.
  50. Negotiate with your company with respect to your value to the company. You just landed a large deal. Was that a fluke or do you expect to close other large deals? If if was not a fluke and the company believes you are valuable to the future of the company, they should work to keep you happy.
  51. Can you escalate to a level above your local VP?
  52. Does it make sense to get off the draw and receive full commissions? Are you financially able to do that?
  53. If the company was going to write off the draw deficit at the end of year 1 anyway, they should be willing to negotiate. You just made them a bunch of money. Suppose that deal was toward the end of your first year. Would they really want you to hold it until after the outstanding draw was forgiven? (I doubt it.)
  54. Question – I am in NY – is there a Federal Law that sets the minimum amount of a commission draw?

    Thank you.

  55. Beth,

    I am not aware of a federal or state law that sets a minimum draw amount. Some states, and I believe New York is one of them, have minimum wage laws that apply to commissions and draws. Check with your state’s department of labor to determine your local requirements.

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