Flat and Tiered Structures
A flat commission pays the same percentage on every dollar of sales. A tiered structure raises the rate as volume passes thresholds, and — like income tax brackets — the higher rate applies only to the sales above each threshold, not retroactively to everything.
On $250,000 with tiers of 4% to $100,000, 6% to $250,000 and 8% above:
| Tier | Sales in the tier | Rate | Commission |
|---|---|---|---|
| Up to $100,000 | $100,000 | 4% | $4,000 |
| $100,000 to $250,000 | $150,000 | 6% | $9,000 |
| Above $250,000 | $0 | 8% | $0 |
| Total | $250,000 | 5.2% effective | $13,000 |
The effective rate of 5.2% is below every tier rate above the first, which is what tiered structures are designed to do: reward reaching the next threshold without paying the top rate on everything.
The Split
In real estate, insurance and many agency models, the commission is divided between the agent and the brokerage. A 50/50 split on a 6% real estate commission means the listing agent's brokerage receives 3% of the sale price and the agent personally receives 1.5% — because the 6% was already divided between the listing and buying sides.
Splits usually improve with production. A new agent may start at 50/50 and move to 70/30 or 90/10 as annual volume rises, sometimes resetting each calendar year.
Draw Against Commission
A draw is an advance against future commission. A recoverable draw must be repaid from later earnings, so a bad quarter creates a debt to the employer. A non-recoverable draw functions as a guaranteed minimum. The distinction matters enormously and is often buried in the compensation plan.
Common Structures
- Straight commission — no base. Highest earning potential, no floor.
- Base plus commission — the most common model in B2B sales, typically a 50/50 or 60/40 split between base and target commission.
- Tiered or accelerated — rates rise past quota, often steeply, to reward overperformance.
- Revenue versus gross profit — paying on profit rather than revenue removes the incentive to discount heavily to close deals.
Frequently Asked Questions
Is commission taxed differently?
It is ordinary income. If paid separately from salary it is usually withheld at the flat 22% supplemental rate, which is a withholding convention rather than the final tax.
When is commission earned?
Whatever the contract says — at the signature, at delivery, or at payment by the customer. Clawback provisions for refunds and cancellations are common and worth reading before signing.
What is a typical commission rate?
Real estate 5–6% total, split between sides. Insurance 5–20% of the first-year premium. B2B software 8–12% of contract value. Retail 1–5% of sales.