Business Mathematics: Payroll - Commission

At times it becomes impractical for business owners to assume all the functions of buying and selling. In order to relieve their workload, business owners hire salespeople. The means of paying such employees varies. Some receive a salary (see salary), others receive a commission on the sales they make, and some are paid through a combination of both salary and commission.

A commission is a fee paid for a service rendered (such as selling) and is usually expressed as a percentage of the money received by the business.

Example
Suppose that you are working on a 25% commission basis. This means that your employer gives you 25¢ out of every dollar that you bring into the company through sales. The commission rate multiplied by the sales in dollars equals the amount of commission earned. Your commission on $80 of sales would therefore be

Commission rate × sales = commission earned
25% × $80 = $20
If the commission is based on a single percent (as in the preceding example), it is called straight commission. In variable or sliding scale commission, two or more percents are used.

Example
An employer pays 25% commission on sales up to $800 and 10% on the amount of sales above $800. How much does a salesperson earn on a sale of $1,200?

* The amount above $800 is $1,200 — $800 = $400
A draw is an advance, or sort of loan, against future commissions. An employer may allow a salesperson to draw a regular amount of money each week to help the employee get through “slow” sales periods.

Example
Suppose that an employee draws $200 at the beginning of a week and earns a commission of $240 by the end of the week. How much of the commission does the employee collect at the end of the week?
Commission – draw = difference to be paid employee
$240 – $200 = $40

Solved Problems

3.27   Howard Mush receives a 7% commission from M&M Motor Sales. What is his commission on $12,000 in sales?
Solution
Commission rate × sales = commission earned
0.07 × $12,000 = $840

3.28   Harriet Leidna receives a 6% commission on all her real estate sales. Half her commission goes to her broker. What is Harriet’s portion of the commission on $150,000 in sales?
 

Solution
Commission rate × sales = commission earned
0.06 × $150,000 = $9,000
Harriet gets to keep only half the commission she earns. Therefore, her portion in this instance is


3.29  During a month’s time a furniture salesman receives 4% commission on the first $12,000 in sales, 5% commission on the next $12,000 in sales, and 6% commission on anything over $24,000. What is his commission on $42,000 in sales?
 

Solution

* $42,000 ÷ $24,000 = $18,000

3.30   Slayton Music Company pays its salespeople the following commissions on all sales:
2% on the first $1,000 in sales
5% on the next $1,000 in sales
8% on any sales over $2,000
Commissions are paid monthly. Determine to the nearest cent the commissions earned by the following employees:

Solution



3.31   Dianne Wright receives a weekly salary of $200 plus a 4% commission on her total sales for the month. What are her gross monthly earnings if her total sales for the month are $8,400?
 

Solution


3.32   The employees of Adam & Chase Company receive a weekly salary of $250 plus a 5% commission on their first $10,000 in monthly sales and 7% on any monthly sales over $10,000. What are the gross monthly earnings, to the nearest cent, of the following employees:

Solution

3.33   Brown’s Sportswear Company pays its salespeople a straight commission of 8½% on net sales for the month. Each salesperson also receives a draw of $150 per week. James Conway’s sales for the month were $9,860. At the end of the month he is paid the difference between the draw and commission. What is owed James Conway?
 

Solution


3.34   Jean Gluck is paid a 7% commission on the first $1,500 in carpet sales, 8% on the next $1,500 and 9% on anything over $3,000 in sales. She also receives a $175 per week draw. To the nearest cent, find the difference between the draw and the commission that Jean receives at the end of the month. Her net sales for the month totaled $9,694.66.
 

Solution