The wording on any contract is important. Sales commission contracts must be very explicit in their wording to avoid both unnecessary legal and financial obligations. A sales commission contract must outline terms, what constitutes a sale, legal relationship (contract or employee), dates of payment, selling limitations and territory. Failure to word the contract correctly can result in lost revenue and even legal issues. Both the sales person and company must go over the contract prior to it being signed so both parties understand the terms and what they mean clearly.
Define the parties. The first step in any contract is defining who the parties are and what their relationship is. Lect Law gives the following example: "THIS AGREEMENT by and between, whose address is, hereinafter referred to as 'Company,' and, whose address is, hereinafter referred to as 'Sales Representative.' WHEREAS, Company is engaged in the marketing and sale of and WHEREAS, Sales Representative desires to sell Company's services in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, it is agreed as follows: "
Define the limitations of the sales representative. This includes what they can and cannot say about their products. Define what their territory is and in what scope they can act as a sales person. For example, are they allowed to recruit other sales people?
Protect the company legally by defining the salesperson as an independent contractor. An independent contractor is not an employee and does not have benefits. The company does not withhold tax or provide any frills unless specified. Public Legal Forms defines an independent contractor as: "INDEPENDENT CONTRACTOR: This Agreement shall not render the Agent an employee, partner or joint venturer with the Company for any purpose. The Agent is and will remain an independent contractor in his or her relationship to the Company. The Company shall not be responsible for withholding taxes with respect to the Agent's compensation hereunder. The Agent shall have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, Social Security, worker's compensation, health or disability benefits, unemployment insurance benefits or employee benefits of any kind."
Define the duties of the independent contractor. Explicitly state what the sales person is responsible for. Attach quantifiable performance measurement items to the duties. If it is not defined, then the sales person does not have to do it. Even something as simple as being polite to customer must be defined. For example: "The sales representative will conduct themselves in a professional manner and always represent the best interests of company XYZ. The sales representative is responsible for contacting 10 new perspective clients a day and generating at least 3 sales demonstrations a week."
Define compensation. Compensation for sales people is usually defined as a percentage of goods sold based on either profits or revenue (this must be defined). Payment terms must also be defined. Is the payment for commissions paid when the client pays, is it paid bi-weekly or monthly? For example, "The sales person will be paid 20 percent of all revenue they earn for the company, after the client pays, on the first of each month."
Define the term or length of the contract. This can also include a renewal clause. Public Legal Forms gives this example: "TERM: Unless renewed, this Agreement expires at midnight on *****___* [date]. RENEWAL: Not applicable or This Agreement shall automatically renew for increments of days or_ one month or _ one year, unless either party gives __ days written notice to the other party of his or her intent not to renew."
Sign and date the contract. Have a witness present to confirm the authenticity of the contract.
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