Consider a salesperson with $120,000 in sales, a 5% commission up to a $100,000 target, 8% above it, and $2,000 in base pay. Total pay is $8,600. Commission comes to $6,600, made up of $5,000 up to the target and $1,600 above it, for an effective rate of 5.5%.
How commission plans work
A plan sets a rate on sales. Simple ones use a single rate. Tiered plans pay a higher rate after you pass a target, which rewards strong months. Some also add a base salary, or a draw against future commission.
Using the calculator
Enter the period’s sales, the rate up to the target, the target itself and the rate above it. For a flat rate, set both rates the same. Add your base pay to see the total. Effective rate means total commission divided by total sales.
Reading the example
The first $100,000 pays 5%, or $5,000, and the last $20,000 pays 8%, or $1,600. Blended, that’s 5.5% on all sales. Hitting the target early in the period counts most, since every dollar after it earns the higher rate.
Gross is not net
Commission is income, so tax, CPP and EI apply. It’s often paid on top of regular pay, and an employer may withhold more at first. The payroll deductions calculator estimates what you keep from a cheque.
Commission and Ontario rules
Commission counts as wages under the Employment Standards Act. It feeds into vacation pay and overtime calculations. Paid by commission alone? Ask how the rules apply to you. Get the plan in writing, including how returns and chargebacks are handled.
Testing a plan
Try several sales levels, from a slow quarter to a very good one, and watch pay change. A plan with a high target can pay less than a flat rate for average results. Compare offers at the sales you can realistically make, not the best case.
Draws and chargebacks
A draw is an advance against future commission. Earn less than the draw and you may owe the difference back, depending on the plan. A chargeback takes away commission on sales that are later cancelled or returned. Read both closely.
Setting a goal
Work backwards from the pay you want. To earn $100,000 a year at a 5.5% effective rate with no base pay, you’d need about $1.8 million in sales. Test targets in the calculator. Pick one that suits your territory and your history.
Tracking results
Log each sale, the date it closed and the commission paid, then compare the log with your pay stubs every month. Errors happen, especially with tiers and cancelled sales, and they rarely favour the person being paid. A record lets you ask for a correction with evidence.
Split commission
Some plans share commission between people on one deal. Ask how splits are set, when they’re paid, and who decides if a deal is shared after it closes. Enter only your share of the sales, so the result matches what you’ll receive, and confirm the split in writing.
Where to go next
To see how much of a large payout you keep, use the bonus tax calculator. For percentages of any amount, try the percentage calculator. To plan around variable pay, open the take-home pay calculator.
Frequently asked questions
How do I calculate sales commission?
Multiply sales by the commission rate. With tiers, apply each rate to its part of the sales.
What is a tiered commission?
A plan that pays a higher rate once sales pass a target.
What is the effective commission rate?
Total commission divided by total sales.
Is commission taxed?
Yes. Income tax, CPP and EI apply.
Does commission count for vacation pay in Ontario?
Yes. Commission counts as wages.
Should I get my plan in writing?
Yes. It should cover rates, targets, returns and payment dates.
Sources and updates
Last reviewed: . Full disclaimer. How we build calculators. Editorial policy.
Estimate only. This calculator gives general information for planning. It is not tax, legal or financial advice, and it is not affiliated with the City of Toronto, MPAC or the Canada Revenue Agency. Results depend on the numbers you enter and may differ from official amounts. Check official sources or a qualified professional before you decide.