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Home : Essentials of Payroll : Commissions
CommissionsCommissionsAn employee earns a commission when he or she secures a sale on behalf of a business. The commission may be earned when an invoice is issued or when cash is received from the customer. The commission calculation may be quite complex, involving a percentage of the dollar amount sold, a fixed fee per sale, a bonus override for the sale of specific items, or perhaps a commission-sharing arrangement with another member of the sales force. In any case, commissions are considered regular wages for tax withholding purposes, so all normal income tax withholdings, as well as taxes for Social Security, Medicare, and FUTA must be deducted from them. Example. Mr. Charles Everson is a salesperson for the Screaming Fiddler Company. His basic compensation deal is a 6 percent commission on all sales at the time they are invoiced, plus $25 each for any fiddle that is currently overstocked. He sells two of the Melodic series fiddles for $600 each, and three of the overstocked Kid's Mini models for $450 each. His compensation is as follows:
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