Commission Payments

Chapter 8

1
Commission Payments

Learning Objectives:

 Calculate statutory withholdings on regular and irregular

commission payments
 When a Record of Employment must be completed for a
commissioned employee
 How to complete the Blocks on the Record of Employment
 When a new Statement of Commission Income and Expenses for
Payroll Tax Deductions – TD1X must be completed
Commission Payments

• Commissions are the dollar amounts an employee earns for

selling the company’s goods or services
• Some companies choose to pay employees by commission
instead of, or in addition to, a regular salary
• Commission payments are usually based on the sales generated
by the employee
Commission Payments

Calculation of Commissions
• the method an organization uses to calculate commission
payments is usually specified in either an employment contract
or a collective agreement
Commission Payments

Straight percentage of sales

• commission earnings calculated using the straight percentage
method pay a fixed percentage rate on gross or net sales

Commission = sales x percentage rate

Commission Payments

Example:
• Norman is a real estate agent who receives commission of 3%
on each property sold. Recently a property was sold for
$285,000.00 and therefore a commission of $8,550.00 is owed.

Commission = Sales x percentage rate

= $285,000 x 0.03
= $8,550.00
Commission Payments

Fixed amount per sale

• commission earnings calculated using the fixed amount per sale
method are based on a set dollar amount for each sale.

Commission = Fixed dollar amount x number of products sold

Commission Payments

Example:
• Sarah is an office supply salesperson. A commission of $10.00
for every case of paper sold will be paid. This month 75 cases
were sold and the commission earnings are $750.00

Commission = Fixed dollar amount x number of products sold

= $10.00 x 75
= $750.00
Commission Payments

Multiple rates per target

• commission payments calculated using the multiple rates per
target level are calculated using a set percentage per target
amount
Commission Payments

Commission =
Zero to first target x first percentage rate
+
amount in excess of first target up to beginning of second target x
second percentage rate
+
amount in excess of second target x third percentage rate
Commission Payments

Example:
• Doug is a pharmaceutical salesperson who receives commissions
based on multiple rates for exceeding assigned targets.
According to the employment contract, Doug receives
commission payments as follows:
• 10% for the first $100,000.00 of sales
• 15% for sales exceeding $100,000.00 and up to $120,000.00
• 20% for sales exceeding $120,000.00
Commission Payments

During the month Doug had sales of $145,000.00. The

commission payment is calculated as:

$100,000 x 0.10 = $10,000

+ (120,000 – 100,000) x 0.15 = 3,000
+ (145,000 – 120,000) x 0.20 = 5,000
$18,000
Commission Payments

Payment of Commissions
• the method an employer uses to pay commissions will determine
how the statutory deductions are calculated
• some employees are paid commission in addition to their regular
salary and some are paid only by commissions
Commission Payments

If an employee is only being paid commission earnings they can be

paid in two ways:
• draw/advance against commission – the commission payment is
made over two or more payments, with interim payment(s)
termed a draw or advance on commission
• straight commission – the payment is made only after the sale is
completed or the revenue from the sale is received. This
payment can be on either a regular or an irregular basis
Commission Payments

Draw/Advance against commission

• employees who are paid by commission are sometimes paid an
advance against their commissions owing; this payment is also
known as a draw, which would typically happen when the
employee is paid on a monthly basis
Commission Payments

Example:
• Ashok is a commissioned salesperson who receives a monthly
commission calculated as a 10% fixed percentage of sales. In
addition, a mid-month advance of $1,000.00. For this month,
Ashok generated $43,000.00 in sales. The commissions owing
at month end are calculated as follows:
= ($43,000.00 x 0.10) - 1,000.00
= $4,300.00 - 1,000.00
= $3,300.00
Commission Payments

Straight Commissions
• many organizations pay employees straight commissions only
when the sale is completed or when the revenue from the sale is
received. Depending on the frequency and the volume of sales,
these straight commission earnings can be paid either regularly
or irregularly
Commission Payments

Calculation of Statutory Withholdings

• commission payments are considered income from employment
and are therefore subject to statutory deductions of
Canada/Québec Pension Plan, Employment Insurance, Québec
Parental Insurance Plan, federal and provincial income tax and
Northwest Territories and Nunavut payroll taxes
Commission Payments

Commissions are typically paid four ways:

• Commission paid regularly with salary
• Commission only, paid regularly
• Commission only, paid regularly with a draw or advance
• Commission only, paid irregularly

The method of payment will determine how the statutory

withholdings are calculated.
Commission Payments

Canada/Québec Pension Plan

• the method used to calculate Canada/Québec Pension Plan
(C/QPP) contributions on commission earnings depends on the
frequency of the payment
• C/QPP contributions are only withheld up to the annual
maximum
Commission Payments

Regular commission
• the calculation of C/QPP contributions on commissions paid
regularly with salary or commissions only paid regularly, is done
using the same method as for other employment income earned
on a regular basis.
Commission Payments

Commission with an advance

• Canada/Québec Pension Plan contributions are withheld on both
advance payments and commission payments
• the C/QPP pay period exemption is deducted from the gross
pensionable/taxable income prior to applying the annual C/QPP
contribution rate
Commission Payments

Irregular commission
• when commission payments only are paid irregularly, a prorated
C/QPP exemption is required. The exemption for an irregular
commission payment is based on the yearly basic exemption of
$3,500.00 and the number of days in the calendar year between
the commission payments
Commission Payments

• the yearly basic exemption is prorated over the number of days

between the commission payments within the same calendar
year. There are two steps required in this situation:
• calculate the exemption to be applied
• calculate the C/QPP contribution
Commission Payments

Employment Insurance and Québec Parental Insurance Plan

• regardless of the commission payment method, the premiums
for Employment Insurance (EI) and Québec Parental Insurance
Plan (QPIP) are calculated using a straight percentage of
insurable earnings
Commission Payments

Federal and Provincial Income Tax

• the method for calculating income taxes on commissions varies
according to:
• the regularity with which the payments are made
• whether the payments are paid separately, or in combination with a salary or advance
• whether or not the employee is claiming the expenses they incurred to earn the commission
income
Commission Payments

• regular pay period deduction methods for taxing commissions are used if an
employee is paid commissions regularly or paid commissions with an advance on
the commissions due to them
• an alternative to the payroll deduction tables, employers can also use the bonus
tax method
• commission tax method is used when an employee incurs personal out-of-pocket
expenses to earn their commissions
• employees who incur personal expenses during the year that are not reimbursed
by their employer can claim these expenses to reduce their taxable income when
they file their personal income tax returns
Commission Payments

TD1X
• the purpose of the Statement of Commission Income and
Expenses for Payroll Tax Deductions - TD1X is to allow
employees to claim non-reimbursed expenses at source instead
of waiting until they file their annual personal income tax return
Commission Payments

TP-1015.R.13.1-V
• an employee employed in the province of Québec, who incurs
non-reimbursed business expenses while earning commissions,
may elect to file the Revenu Québec Statement of Commissions
and Expenses for Source Deduction Purposes - TP-1015.R.13.1-
V, in addition to the CRA TD1X to determine the percentage of
Québec provincial tax withholdings
Commission Payments

The TP-1015.R.13.1-V requires the employee to report actual

commissions for the previous year or an estimate for the current
year, and eligible expenses for the current year. The eligible
expenses can be reported using an estimate for the current year or
using the actual expenses for the previous year.
Commission Payments

The percentage of commissions to be included in calculating the

employee’s Québec provincial tax liability is calculated using the
following formula:

Net commission for the year x 100

Gross commission income
Commission Payments

Northwest Territories/Nunavut Payroll Tax

• where a commission employee’s regular remuneration is subject
to the Northwest Territories and/or Nunavut Payroll Tax, their
commission payments would also be subject to the 2% tax
Commission Payments

Completing the Record of Employment

• there are specific rules that apply to issuing and completing the
Record of Employment (ROE) for commission employees who are
paid by commission only or are paid a salary plus irregularly paid
commissions
• where commissions are paid with salary on a regular pay period
basis the regular Record of Employment rules apply
Commission Payments

Issuing Exceptions
• the Record of Employment must be issued when there has been
an interruption of earnings
• an interruption of earnings occurs when an employee:
• has had (within the last 52 weeks or since the last ROE), or is anticipated to have, seven (7)
consecutive calendar days without both work and insurable earnings from the employer, or
their job
• has a salary that falls below 60% of regular weekly earnings because of illness, injury,
quarantine, pregnancy, the need to care for a newborn or a child placed for the purposes of
adoption, or the need to provide care or support of a family member who is gravely ill with a
significant risk of death
Commission Payments

The seven day rule does not apply to employees paid mainly by commission.
• For these employees, an interruption of earnings occurs only when the contract of employment is terminated,
unless the employee ceases to work because of:
• illness
• Injury
• Quarantine
• Pregnancy
• to care for a newborn or a child placed for the purpose of adoption
• to care for a gravely ill relative who is at significant risk of dying
Commission Payments

Reporting Exceptions
• most blocks on the ROE are completed using the general
instructions discussed in a previous chapter, but there are
exceptions as follows:
Commission Payments

Block 2 – Serial number of record amended/replaced

• When a late commission is received, an amended ROE is issued including these monies in the
averaged earnings. Block 2 will show the serial number from Block 1 of the original ROE.

Block 6 – Pay Period Type

• The pay period type is always weekly, regardless of the actual pay period type.

Block 12 – Final pay period ending date

• The final pay period ending date should be the Saturday of the week in which the last day for
which paid, reported in Block 11, occurs.
Commission Payments

Number of consecutive
Number of consecutive pay periods to report
Pay Period Type pay periods to report for for
(Block 6) Total Hours (15A) Total Earnings (15B)
or Detailed Earnings
15C)

Last 53 pay periods (or Last 27 pay periods (or

Weekly less if period of less if period of
employment shorter) employment shorter)
Commission Payments

Block 15A – Total insurable hours

• complete this block using the weekly pay period type
• the hours to be included will go back no more than 53 weeks from the date in block 12, or to
the first day worked, Block 10, whichever is the shorter period of time
Commission Payments

• many employees who are paid by commissions only, do not have

regularly scheduled hours
• the employee and the employer can come to an agreement on
the scheduled hours
• where there is no agreement, the employee’s hours are
determined by dividing the total insurable earnings paid in the
last 52 calendar weeks (or period of employment, if less) by the
provincial minimum wage in effect as of January 1 of the year(s)
to a maximum of 7 hours per day or 35 hours per week
Commission Payments

Example:
• a large equipment salesperson in Alberta is paid on a
commission only basis; there are no established hours. Since
joining the company 24 weeks ago, the employee has earned
$38,700.00 in commissions. The minimum wage in Alberta as of
October 1, 2018 is $15.00 per hour. The insurable hours would
be determined as follows:
Commission Payments

Average weekly insurable hours =

Total insurable earnings

Minimum wage x insurable weeks

= $38,700.00
$15.00 x 24

= 107.50 hours
Commission Payments

The maximum of 35 insurable hours per week will be used for

Block 15A of this employee’s Record of Employment.

Total insurable hours

= 35 hours x 24 weeks (length of employment)
= 840.00 hours
Commission Payments

Block 15B - Insurable Earnings

• as a commission employee’s earnings may fluctuate over the
period of time to be reported on the Record of Employment, an
average weekly earning must be determined to complete Block
15B
Commission Payments

The employee’s average weekly earnings are determined as follows:

• take the employee’s total insurable earnings (salary, bonus, commissions,
excluding any insurable monies paid on termination) paid within the last 52
weeks or since the date of employment, whichever is shorter
• divide the insurable earnings by the number of insurable weeks (52 or length
of employment, if shorter)
• round the above amount to the nearest penny – this is the average weekly
earnings
• multiply the average weekly earnings by 27, or less if the period of
employment is shorter
• add any insurable amounts the employee received because of the termination
that are reported in Block 17 – this is the total insurable earnings entered in
Block 15B.
Commission Payments

Block 15C - Insurable Earnings by Pay Period

• For commission salespeople, Block 15C is only completed when the

ROE is issued electronically
• Use the average weekly earnings amount calculated for Block 15B to
complete all the applicable pay period fields in Block 15C, except for
P.P. 1 (the final pay period).
• In the P.P. 1 field, add any insurable amounts the employee received
because of the termination to the average weekly earnings amount.
Commission Payments

 Have you ever paid commission employees?

 What are the differences between paying salaried employees and
employees who are paid only by commission?
 Do your commission employees complete the TD1X or the TP-
1015.R.13.1-V form?
 Do you find that new employees who are paid by commission are
aware that they can complete these forms to get the tax relief
during the year?