Commission Calculator

A draw is an advance paid each period whether or not the rep has earned it yet. Take a $3,000 monthly draw and commissions of $2,000, $5,000 and $3,500 over a quarter:

With a recoverable draw the first month's $1,000 shortfall is taken back from the second month's commission above the draw, so over the quarter the rep is paid exactly what was earned. With a non-recoverable draw the employer absorbs the shortfall and the rep receives $1,000 more. A non-recoverable draw is effectively a guaranteed minimum.

Two limits apply to employees. For non-exempt staff, pay for every workweek must reach the minimum wage regardless of the draw balance. And whether an unrecovered balance can be collected when someone leaves is set by the written plan and state wage law, so many employers simply write it off. California requires commission agreements with California employees to be in writing and to explain how commissions are computed and paid (Labor Code 2751).

Start from pay, not from the rate. Decide the on-target earnings (OTE) for the role, split them into base and variable pay, and set a quota the rep can reach. Then:

Commission rate = target variable pay ÷ quota

A role with $100,000 OTE split 50/50 has $50,000 of variable pay. With a $1,000,000 annual quota the base rate is 5%. Paying on gross margin instead of revenue protects the business when reps can discount: at a 40% margin the same $50,000 needs a 12.5% rate on $400,000 of margin. Use the reverse mode to check what sales a target requires, and run the plan through a weak quarter and a record quarter before publishing it. A plan that pays more than the deals earn after cost is a plan that needs a cap or a margin base.

A commission is earned by formula on each sale. A bonus is paid on a goal, a date or a decision. The difference matters in three places:

• Withholding: none. IRS Pub 15 (2026) lists both bonuses and commissions as supplemental wages, so the same 22% flat rate (37% over $1 million) is available for either. The bonus tax calculator works for commission checks too.
• Overtime: commissions always count in the regular rate used to figure overtime for non-exempt employees (29 CFR 778.117). Discretionary bonuses, where the employer decides both whether and how much to pay at the end of the period, are excluded (29 CFR 778.211); bonuses promised in advance are included.
• Contract terms: a commission is usually earned when the sale closes or the customer pays, as the plan defines it, while a bonus may require the employee to still be employed on the payout date.

W-2 employees. Commissions are wages. Paid with regular salary and not itemized, they are withheld as one regular payment. Paid separately, the employer can withhold a flat 22% federal income tax, and must use 37% on supplemental wages above $1,000,000 in the year. Social Security (6.2% up to the 2026 wage base of $184,500) and Medicare (1.45%) apply either way. Withholding is a prepayment: someone in the 12% bracket usually gets part of the 22% back at filing, and someone in the 24% bracket or higher may owe.

1099 contractors. No one withholds. The rep owes self-employment tax of 15.3% on 92.35% of net profit plus income tax, and pays through quarterly estimated taxes. On $10,000 of commission with no expenses, self-employment tax is $1,412.96. Licensed real estate agents are statutory nonemployees: if substantially all their pay is tied to sales and a written contract says they are not employees, they are self-employed for federal tax purposes (IRS Pub 15-A). Model the whole bill with the 1099 tax calculator or the self-employment tax calculator, and plan payments with the quarterly tax calculator.

Commissions do not by themselves exempt anyone from overtime. Under Section 7(i) of the Fair Labor Standards Act, a commissioned employee is exempt from overtime only if all three conditions are met:

1. The employee works for a retail or service establishment.
2. The regular rate is more than 1.5 times the federal minimum wage in every week with overtime hours, so above $10.875 an hour (DOL opinion letter FLSA2026-4 confirmed in January 2026 that the federal rate, not a higher state rate, is the test).
3. More than half of the employee's earnings over a representative period of at least one month are commissions.

Outside sales employees, whose main job is selling away from the employer's place of business, are exempt from minimum wage and overtime under 29 CFR 541.500. Everyone else paid commission is owed overtime, with the commission folded into the regular rate. State laws can be stricter.

A real estate commission is a percentage of the sale price, divided between the listing side and the buyer side, and each agent then shares their side with the brokerage. On a $400,000 sale with 2.5% to the listing side, the listing brokerage receives $10,000. An agent on a 70/30 split keeps $7,000, and $6,500 after a $500 transaction fee. Referral fees to another agent usually come off the top before the split.

The NAR settlement practice changes took effect on August 17, 2024. Offers of compensation to buyer agents can no longer be made on the MLS, buyers working with an agent sign a written agreement before touring a home, and commissions remain fully negotiable. Sellers can still offer to pay the buyer side off the MLS or as a concession, so enter the rates from your own agreements.