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Draw against commission employment

Yankease 10 April 6, 2012 at 11:32 AM
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Can anyone clarify the following scenario? Also, if anyone wants to talk about his/her experience working as a draw against commission employee, plus pros and cons, that would be great.


You are hired as a recruiter and will get paid $16/hour (as a 1099 independent contractor) to work 40 hours per week. That equals $2,560. If you make a placement in your first month of work that earns you a commission of $5,000, you will be paid the remainder of
$5,000 - $2,560 = $2,440.

However, if it takes 3 months to make the initial placement, you have been paid $7,680 in salary so far. Factoring in the $5,000 commission amount, do you now owe the employer $7,680 - $5,000= $2,680? This is the main concept I want to be clear on, because there is obviously a huge difference between being in debt to your employer and not being in debt.

If that is indeed the case, your effective monthly pay for that 3 month period decreased from $2,560 to $1,666. So, to summarize, you have to work very hard in a tough market to be over the commission amount so that you don't wind up owing money to your employer, right?

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#16
That's just typical indemnity contract language. I wouldn't be concerned (in relation to your compensation). If they intended to demand payback for unearned commission draw, they would have made it much more obvious.
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#17
Quote from phonic View Post :
That's just typical indemnity contract language. I wouldn't be concerned (in relation to your compensation). If they intended to demand payback for unearned commission draw, they would have made it much more obvious.
Got it. Thanks for taking the time out to help me.
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#18
Quote from Yankease View Post :
Understood. How about my most recent question regarding the draw and commissions?
To me a draw against a commission means that they will pay you the difference between what you have earned at $16/hour and what you have earned in commissions.

Example:
Month 1
80 hours @ $16/hr = $1,280
Sales totaling $10,000 @ 20% commission = $2,000
$2,000 - $1,280 = $720 owed.

Therefore they would cut you a check for $720 and not an additional $2K. Given there is no payback clause I don't believe you would owe any money back.

That is what the language you provided says to me. While I have zero experience with commissions I can tell you that I over see the accounting and finance for a partnership. The partners receive draws against profits for the year.

Example:
Partner Draw is $225,000
If the partner has a 5% interest this means to completely earn their draw the Firm's profit calculation must total $4.5M. The way my Firm is structured if the profits were only $4.0M then that partner would owe $25K back to the partnership. The $25K becomes a 1 year payable note at a predetermined interest rate.
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#19
Quote from PiratesSayARRR View Post :
To me a draw against a commission means that they will pay you the difference between what you have earned at $16/hour and what you have earned in commissions.

Example:
Month 1
80 hours @ $16/hr = $1,280
Sales totaling $10,000 @ 20% commission = $2,000
$2,000 - $1,280 = $720 owed.

Therefore they would cut you a check for $720 and not an additional $2K. Given there is no payback clause I don't believe you would owe any money back.
That's a good breakdown, and I view it the same way. Thanks. The boss said over the phone, "We are not going to ask for money back" and that the money earned from my hourly compensation will not be in jeopardy.
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#20
Quote from Yankease View Post :
That's a good breakdown, and I view it the same way. Thanks. The boss said over the phone, "We are not going to ask for money back" and that the money earned from my hourly compensation will not be in jeopardy.
I think you misheard him. His actually response was:

"We are not going to ask for money back. We would never do anything like that. Why bother asking? We already have your banking information for direct deposit. We can just use that to do an ACH debit from your account. But don't worry, we won't ask."
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#21
Quote from phonic View Post :
I think you misheard him. His actually response was:

"We are not going to ask for money back. We would never do anything like that. Why bother asking? We already have your banking information for direct deposit. We can just use that to do an ACH debit from your account. But don't worry, we won't ask."
Haha. I actually may not be paid via direct deposit...
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