Commission pay is money an employer pays a salesperson as a share of the sales they close, usually a percentage of the deal value. It comes in three main forms: straight commission with no base salary, salary plus commission, and a draw against commission that advances pay before deals close. Most B2B SaaS account executives are paid salary plus commission.
This page covers how commission pay is calculated, how the three structures compare, what a ramping SaaS rep actually earns under each one, a worked three-month paycheck, and the federal and New York rules that apply. Every number is linked to its source or labeled as illustrative.
What Is Commission Pay?
Commission pay is variable pay tied to sales results: the seller earns a percentage of, or a fixed amount per, each sale they make. The US Department of Labor puts it simply: "A sales commission is a sum of money paid to an employee upon completion of a task." It adds that the Fair Labor Standards Act "does not require the payment of commissions" and that a commission "may be paid in addition to a salary or instead of a salary" (DOL, Commissions). New York's definition is more precise: compensation "based on a percentage of or some other amount based upon a salesperson's orders or sales" (NY Department of Labor, Payment of Commissions FAQ).The basic formula has two inputs:
Commission = commissionable amount x commission rateIn Excel or Google Sheets, with the deal amount in B2 and the rate in C2: =B2*C2. A $40,000 deal at 10.5% pays $4,200.
The commissionable amount is where plans differ most. A retail seller may earn a percentage of the sale price. A real estate agent earns a share of the home price. In B2B SaaS, the base is usually new annual contract value (ACV) or bookings, sometimes gross margin, and only rarely recognized revenue. The same 10% rate pays very different checks on different bases, which is why the sales commission glossary entry treats the base as a design choice in its own right.
How Does Commission Pay Work?
A written plan sets the base, the rate and the timing, a deal closes, the commission is earned under the plan's terms, and payroll pays it on the next commission cycle. The steps look the same in most companies:- The plan defines the terms. What counts as a sale, the rate, any quota or tiers, when a commission is earned, when it is paid, and what happens to deals that cancel. In New York, a commission salesperson's agreement must be written and signed by both sides, and must cover how commissions and draws are calculated, how often pay happens, how often a recoverable draw is reconciled, and what is paid when employment ends (NY DOL).
- The deal closes. Sales operations confirms the deal against the plan rules: the commissionable amount, the owner, and any split with another rep.
- The commission is earned. The plan decides the moment. It may be signature, invoice or cash collection. If a New York agreement is silent and there is no past practice, the commission is earned when the seller produces a buyer "ready, willing, and able" to sign on the employer's terms (NY DOL).
- Payroll pays it. Many SaaS plans pay monthly, and some pay quarterly. Commission paid apart from salary is usually withheld at a flat 22% federal rate (IRS Publication 15).
- Adjustments follow. Draws are reconciled, accelerators kick in once quota is passed, and clawbacks recover commission on deals that cancel within the agreed window.
Types of Commission Pay
There are three ways to structure commission pay, plus two modifiers that change the rate. Straight commission, salary plus commission and a draw decide how much pay is guaranteed. Tiers and residuals decide what each sale is worth.| Structure | How pay is calculated | Who carries the income risk | Where it fits | B2B SaaS use |
|---|---|---|---|---|
| Straight commission | Rate x sales, no base salary | The seller | Short cycles, high deal count, independent agents, real estate | Rare for employed reps. Long ramp makes it unworkable |
| Salary plus commission | Fixed base + rate x sales | Shared | Most quota-carrying roles | The standard AE and account manager plan. Bridge Group's 2024 median split was 53:47 base to variable (Bridge Group) |
| Draw against commission | An advance paid each period, then reconciled against commission earned | The seller if recoverable, the company if non-recoverable | Ramp periods, new territories, new products | New hires and reps taking an empty territory |
| Tiered commission (modifier) | The rate rises after each threshold, such as quota | Same as the base structure | Plans that reward overperformance | Accelerators above 100% of quota |
| Residual or renewal commission (modifier) | A rate on renewals or recurring revenue from existing accounts | Same as the base structure | Subscriptions, insurance, managed services | Renewal and expansion pay for account managers |
Straight commission
Straight commission pays only for results: no sale, no pay. It gives the seller unlimited upside and gives the company a cost that rises and falls with revenue. It works when deals close quickly and often, so income evens out within weeks. It breaks when the sales cycle is long, when the territory is new, or when the seller is still ramping, because months can pass with nothing to pay on. For employees who are not exempt, it also has to clear minimum wage rules (covered below).Salary plus commission
Salary plus commission pays a fixed base for the work and a commission for the result. Together, base and commission at 100% of quota make up on-target earnings. The split between them is the pay mix. Most B2B sales roles use this structure because the base keeps a rep in seat through a long cycle while the commission still points effort at closing.Draw against commission
A draw is an advance on commission not yet earned, paid on the normal payroll cycle and settled against actual commission at set intervals. A recoverable draw is repaid from later commission. A non-recoverable draw is a guaranteed minimum the company absorbs if the rep falls short. Our guide to the draw against commission covers how to size the draw and the recovery window.Commission vs Salary: Which Is Better?
Neither is better in general. The more control a seller has over the close, and the shorter the cycle, the more of their pay can ride on commission. A retail seller who closes several sales a day can live on commission. A SaaS account executive with a six-month cycle cannot, because in many months nothing closes at all.Ramp makes the point sharper. Pete Furseth, ORM's COO, says that across B2B SaaS and technology companies, "it takes 15 to 18 months for a rep to become fully productive." ORM measures ramp from actual bookings against the full quota, and a representative AE curve Pete shared from patterns ORM has observed runs 3% of full quota in months 1 to 3, 11% in months 4 to 6, 49% in months 10 to 12, and 103% from month 16. Here is what that curve pays a new AE each month under two plans.
Illustrative numbers. OTE of $180,000: a $96,000 base ($8,000 a month) and $84,000 of variable pay at plan, against an $800,000 annual ACV quota ($66,667 a month). Salary plus commission pays 10.5% of ACV ($84,000 / $800,000). A straight commission plan that pays the same $180,000 at quota needs 22.5% ($180,000 / $800,000).| AE tenure (ORM level) | Productivity vs full quota | Monthly ACV closed | Straight commission (22.5%) | Salary plus commission ($8,000 + 10.5%) |
|---|---|---|---|---|
| Months 1 to 3 (Level 1) | 3% | $2,000 | $450 | $8,210 |
| Months 4 to 6 (Level 2) | 11% | $7,333 | $1,650 | $8,770 |
| Months 10 to 12 (Level 4) | 49% | $32,667 | $7,350 | $11,430 |
| Month 16 onward (Level 6) | 103% | $68,667 | $15,450 | $15,210 |
How to Calculate Salary Plus Commission
Total pay = base salary for the period + (commissionable sales x commission rate). In SaaS, the rate is usually derived from the plan rather than picked: commission rate = variable pay at plan / annual quota.With Bridge Group's 2024 medians for SaaS account executives, $190,000 OTE at a 53:47 split and an $800,000 ACV quota (Bridge Group), variable pay at plan is $89,300 and the rate works out to 11.2% of ACV. In our illustrative plan, $84,000 / $800,000 = 10.5%.
In Excel or Google Sheets, with monthly base in B2, ACV closed in C2, variable at plan in D2 and annual quota in E2:
- Commission rate: =D2/E2
- Monthly commission: =C2*D2/E2
- Monthly total pay: =B2+C2*D2/E2
Worked Example: One Rep's Paycheck Under Three Plans
Illustrative numbers. The same AE closes $0 of ACV in month 1, $40,000 in month 2 and $120,000 in month 3, so $160,000 for the quarter, or 80% of a quarterly quota of $200,000. Plans as above: salary plus commission at $8,000 a month plus 10.5%, straight commission at 22.5%, and a recoverable draw of $10,000 a month against the 22.5% straight commission, reconciled monthly with any shortfall carried forward.| Month | ACV closed | Salary plus commission | Straight commission | Draw: commission earned | Draw: paid | Draw: balance owed after payroll |
|---|---|---|---|---|---|---|
| 1 | $0 | $8,000 | $0 | $0 | $10,000 | $10,000 |
| 2 | $40,000 | $12,200 | $9,000 | $9,000 | $10,000 | $11,000 |
| 3 | $120,000 | $20,600 | $27,000 | $27,000 | $16,000 | $0 |
| Quarter | $160,000 | $40,800 | $36,000 | $36,000 | $36,000 |
- Salary plus commission pays the most at 80% attainment, because the base does not shrink. Over a year at this pace ($640,000 of ACV), it pays $96,000 + $67,200 = $163,200, or 91% of OTE.
- Straight commission pays $0 in month 1 and $27,000 in month 3. A year at this pace pays $144,000, or 80% of OTE. The seller carries the whole miss.
- The draw changes timing, not the total. In month 3 the rep earned $27,000, the $11,000 balance comes off first, and the remaining $16,000 is paid. The quarter totals $36,000, the same as straight commission. Had the rep left after month 2 owing $11,000, whether any of it is repayable depends on the written plan and state law (see the New York rule below).
- Withholding. If the $27,000 in month 3 is paid as a separate commission check, the flat 22% federal method withholds $5,940 before Social Security, Medicare and state tax. IRS Publication 15 explains both withholding methods.
For the company, salary plus commission cost $40,800 for $160,000 of ACV in this quarter, 25.5 cents per booked dollar, against 22.5 cents under straight commission. That gap is the price of keeping a rep in seat through a slow month.
Commission Pay Rules: Minimum Wage, Overtime and Written Plans
Federal law does not require commission, but commission does not switch off minimum wage or overtime for non-exempt employees, and states add their own rules on written plans and earned commission. Not legal advice: confirm the rules for each state where your sellers work with employment counsel.- Minimum wage. The federal minimum wage is $7.25 an hour, and many states set a higher one (DOL). In New York, if a non-exempt commission salesperson's draw and commissions fall below minimum wage for the pay period, the employer must make up the difference on the same payday (NY DOL).
- Outside sales exemption. A seller is exempt from federal minimum wage and overtime when their primary duty is making sales and they are "customarily and regularly engaged away from the employer's place or places of business." The salary test does not apply to this exemption. Sales made only by mail, phone or internet generally do not count as outside sales unless they support in-person calls (DOL Fact Sheet #17F). An inside SaaS rep who sells over video calls usually does not meet this test, so check whether another exemption applies.
- Retail commission exemption, section 7(i). Commissioned employees of a retail or service establishment are exempt from overtime only when three conditions hold: the regular rate exceeds one and a half times the minimum wage, more than half of earnings in a representative period (one month to one year) are commissions, and the employer is a retail or service establishment, meaning 75% of its annual sales are not for resale and are recognized as retail in its industry (DOL Fact Sheet #20).
- Overtime math. For non-exempt sellers, the regular rate used for overtime covers "all remuneration for employment," and earnings may be set "on a piece-rate, salary, commission, or some other basis" (DOL Fact Sheet #56A). Commission therefore feeds into the overtime rate.
- Earned commission is wages in New York. Once earned, commission is legally wages, deductions are limited to those Section 193 allows, and earned commission must be paid even after the job ends. The employer keeps the signed agreement for at least three years after employment ends. If it cannot produce one, the Department presumes the seller's version of the terms is correct (NY DOL).
- Draw repayment in New York. A seller does not have to repay a draw unless a written agreement says the draw is recoverable and states how often it is reconciled, and a draw can never be recouped from wages other than commissions (NY DOL).
California has its own written-contract rule for commissions (Labor Code 2751).
What Commission Pay Does to Seller Behavior
Commission pay is a steering input: sellers do what the plan pays for. Pay a flat rate on any deal and reps chase small, fast deals. Pay on margin and they defend price. Cap the plan and top sellers park deals once they hit the cap. Our sales compensation guide walks through how to design the plan from the behavior backward.Pete's view is that compensation becomes useful "when the company wants to influence behavior. You might relieve quota or pay a multiple for selling a strategic product, for example. That is different from simply increasing everyone's quota because the company wants more revenue." He plans for average quota attainment of about 75% to 80%. If the growth target only works when average attainment falls to 50%, "you do not really have a quota-setting problem. You have a capacity problem."
Fairness matters as much as the rate. When territories are split, Pete's advice is to show the seller the data: "Here is the market potential in your territory. Here is your quota. Here is why we believe you still have a fair and equitable opportunity to hit your number." A commission rate on an unreachable quota is a salary cut in practice.
ORM's Take
Commission pay is only as fair as the quota underneath it, and the quota is only as good as the capacity model behind it. ORM builds that model from measured ramp by role and region, then runs a machine learning forecast that targets 95% accuracy, so leaders can see early whether the plan they are paying against is on track. To see it on your own data, schedule a demo.
Frequently Asked Questions
Which is better, commission or salary?
It depends on how much control the seller has over the close and how long deals take. Straight commission suits short cycles and experienced sellers who want uncapped upside. Salary plus commission suits most B2B roles, because a base covers long cycles and ramp while commission still rewards results. Salary alone fits roles that support a sale without owning it, such as customer success or solutions engineering.
What are the downsides of commission pay?
For the seller, income swings month to month and a slow quarter or a weak territory can cut pay sharply. For the company, commission can reward the wrong deals, such as small fast ones or heavy discounts, if the plan pays on the wrong base. Draw balances, clawbacks and disputed splits add friction, and a plan that is not written down is the easiest one to argue about.
Is a 5% commission good?
A rate means little without its base and the salary next to it. In residential real estate, total commission averages about 5.46% of the home price, split between both agents (Clever, August 2026). A B2B SaaS account executive on salary plus commission earns roughly 10% to 11% of new annual contract value at plan, based on Bridge Group medians. Compare rates only within the same role and base.
Do commission-only employees have to earn minimum wage?
Commission does not by itself exempt an employee from minimum wage. Under the FLSA, non-exempt employees must earn at least the federal minimum of $7.25 an hour, and many states set a higher floor. Outside salespeople who sell away from the employer's place of business are exempt. In New York, if a non-exempt seller's draw and commissions fall short, the employer makes up the difference on the same payday.
How is commission pay taxed?
Commission is ordinary wage income, taxed at the same federal rates as salary plus Social Security and Medicare. The difference is withholding. When commission is paid separately from salary, employers usually withhold a flat 22% federal rate under IRS Publication 15, or 37% on supplemental wages above $1 million in a year. The final tax is settled when you file your return.
Do you have to pay back a draw against commission?
Only if the plan says so. A recoverable draw is an advance that later commission pays back, and a non-recoverable draw is a guarantee the company absorbs. In New York, a seller does not have to repay a draw unless a signed written agreement says it is recoverable and sets how often it is reconciled, and a draw can never be taken from wages other than commissions.
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