Suggested Lesson Plan
for this Worksheet
One way that people earn money is by
commission. A commission is a percentage of sales or
profit of items or services being sold, or a fixed amount per
sale. For example, a
person selling books may earn 10% of every book sold. If $1000
of books are sold, then $100 in commissions are earned. Types of
jobs that often include a commission include car sales, real
estate, etc. Commissions are used as a way for companies to
motivate employees.
The amount of money earned by an employee is
called gross pay. The actual amount of money received is net
pay, or the amount after deductions such as taxes. See our
other money lessons for further information on gross and net pay,
and taxes.
Commission compensation arrangements may vary
by industry, but here are some common types:
Straight commission
With a straight commission, the individual only
receives a percentage of the sales made. No additional
compensation is given or guaranteed.
Base plus commission
Often, besides the percentage of sale or
profit, one working for commission may receive additional
compensation. This salary may include 'base', or base
plus commission. For example, a book sales person may earn a
$1000 base plus 10% of every book sold.
Draw against commission
Another commission compensation method includes
a draw, or draw against commission. With a draw, the company will
guarantee a certain amount of pay. If the salesperson's
commission is below that amount, then they will receive the draw
amount. The salesperson is expected to pay back the
difference between the commission earned and the amount
received from the draw.
Other things to consider include:
Is the employee paid for expenses, such as
travel and entertainment?
Is pay based on sales or collections (when the
money is collected from the buyer)?
Questions for Discussion:
What type of jobs tend to pay by commission?
(car salesperson, real estate, retail store salesperson)
Why is earning money by commission good? (if
you do well you earn more money, your interests are tied more
directly to the business -- earning a profit)
Why would you not like to earn money by
commission? (more risky if you are not able to make enough sales,
pushy salespeople)
Will you get the full commission amount in your
paycheck? (no, commissions are taxable -- taxes are deducted)
Vocabulary to understand:
Commissions
Wages
Salary
Base
Draw
Gross Pay
Net Pay
Collections
Bonus
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