What is a commission system of remuneration - disadvantages, advantages and its calculation

The commission system used in remuneration is increasingly used today in companies and organizations of various forms of ownership. The system allows you to fully comply with the requirements of current labor legislation in the field of remuneration and successfully shows itself in the work of various organizational and legal structures.

Entries in documents

The commission salary is usually mentioned in documents such as:

• Payment Regulations. The commission form must appear in a specific document. Approved by order of the director, in case of change or through a new edition.
• Employment contract. All commission agreements, as well as conditions, must be reflected in the employment contract.
• Reception order. Similar to an employment contract, in the case of using the unified order form T-1. The necessary line about the percentage is added, and all the conditions for employment are indicated. In the lines about the rate, put a dash in case of commission-piece rate.
• Order on Labor Standards. There are certain standards (working time, service and sales). The approximate value of the level of work done, on which earnings depend.
• Staffing schedule. Taking into account the instability of the salary size, if the form is commission-bonus, then the staffing table indicates the rate itself as a constant part, and the percentage as an allowance or bonus. If commission-based, then the minimum possible rate corresponding to the position is indicated. But at the same time, it is paid only with the proviso that the person earned less than it during the period.

Types of commission system of remuneration

It is planned to increase official salaries by 1.04 times for employees of federal institutions, such as civilian personnel of military units, as well as employees of federal government agencies, institutions and divisions where military and equivalent service is provided.

But questions often arise with district and precinct ECs. After all, such ECs are formed separately for each election. Therefore, we will remind you about the nuances of remuneration in such ICs.

This Resolution must be taken into account in the event that government bodies of the constituent entities of the Russian Federation, regional associations of trade unions and regional associations of employers conclude a regional agreement on the minimum wage in the constituent entity of the Russian Federation.

Subscribe to our official pages on social networks and be the first to know about the most important and interesting events of the year!

The legislative framework

Legislation is one of the most significant and effective regulators of commission remuneration. Let's look at the following table to see what documents are controlled by companies using this payment system:

Failure by an employer to comply with the rules specified in the legislative framework of the Russian Federation may entail serious liability, including criminal liability.

Five key innovations in the wage regulations for 2019

Each meeting of the commission is held individually. This means that only one organization or one entrepreneur is invited. At the same time, it is important to remember that in accordance with the requirements of Article 136 of the Labor Code of the Russian Federation, wages to workers with piecework wages must be paid in the general manner, namely at least twice a month, with an interval of no more than 15 days between payments.

PS: In the material, the amount of standard deductions for 2020 is taken from the draft Tax Code 2019. The material was published in December 2020, but the information is fully consistent with the adopted Tax Code 2019.

According to the resolution of the Government of the Republic of Sakha (Yakutia) dated 02/05/2019. No. 17 “On increasing the wages of employees of institutions of the public sector of the economy in the Republic of Sakha (Yakutia)” from January 1, 2020, the wages of other categories of public sector employees were increased by 4 percent.

https://youtu.be/IOmEa_CW6TU

Tariff system of remuneration

Tariff SOT is the most common, used by both government agencies and commercial organizations. It is based on the ranking of employee salaries depending on their qualifications, work experience, acquired skills, output, conditions and nature of work. In government agencies, the Unified Tariff Schedule is used. In commercial ones - documents similar to it, approved taking into account the opinion of the trade union body.

Tariffing is regulated by law for many industries. For example, for employees in the education sector, an individual tariff SOT has been established in accordance with Government Decree No. 583 dated 05.08.2008.

There are two types of tariff systems: piecework and time-based.

Commission pay: where it is applied and how it is calculated

Important

If an organization seeks to increase production capacity utilization, then it is necessary to direct employees to sell the maximum number of units of product, for which a fixed amount of money can be established for each unit of product sold.

To ensure the stable operation of the entire organization, remuneration for employees of the sales department can be made in the form of a fixed percentage of the base salary when the implementation plan is fulfilled.

Forms of remuneration According to Article 131 of the Labor Code of the Russian Federation, wages are paid in cash and always in rubles.

Along with these conditions of a collective or direct employment contract, another (non-monetary) form of payment of wages may be provided that does not contradict the current legislation of the Russian Federation and international treaties of the Russian Federation.

Remember! For a commission-based wage system to be approved, employees must be able to directly exert significant influence on sales or production. An approximate list of areas in which it is advisable to use commission wages:

• trading enterprises;
• advertising agencies;
• sales services;
• marketing departments;
• production workshop workers;
• service sector.

The decision to establish a commission system of remuneration for some employees must be reflected in:

• regulations on wages;
• employment contract;
• employee hiring order;
• staffing table;
• collective agreement.

Do not forget! The standards set out in the Regulations on Remuneration must be previously agreed upon with the trade union or the body replacing it.

Commission system of remuneration

In addition, the commission paid may be set as a fixed percentage of sales, or a progressive scale may be used, in which the employee “accumulates points” depending on his own achievements and, after certain accumulation levels, begins to receive larger amounts.

Another type of remuneration on a commission basis is payment in the form of a certain percentage of the amount of payments received by the organization from the customer as a result of the employee performing his job duties.

The percentage of revenue that is paid to the employee is determined by the head of the organization and is fixed in the Regulations on remuneration or directly in the employment contract with the employee. Example.

We specify in the employment contract the use of a commission system

When drawing up an agreement on working conditions and payment, the employer and employee must agree on all points of the contract. To reduce the risk of labor disputes arising from unresolved financial issues, it is necessary to stipulate in the employment contract:

• the amount of remuneration at the end of the month broken down by type of payment, that is, indicating the base salary (if any) and bonuses;
• factors on which the amount of the incentive portion of wages depends;
• conditions for payment of salary advances with fixation of their size;
• clarification of information on the calculation of payments in connection with vacation, temporary disability, indicating that their size does not depend on labor productivity.

In an employment contract, when describing the payroll scheme, you should not provide references to the Regulations on Remuneration or the staffing table. The employee does not have these documents and cannot review them at any time convenient for him. The trade union organization has the right to refuse to approve this version of the agreement.

Labor legislation does not regulate the maximum percentage for incentive bonuses. If desired, the employer can introduce a restriction and reflect this as a separate paragraph in the local documents of the enterprise. For the management of the organization, this is an additional opportunity to save on labor costs.

The decision to introduce a commission system of remuneration for all employees or a separate category of personnel is the prerogative of the employer. But it is worth remembering that all the nuances regarding the payroll mechanism must be reflected in the relevant local acts of the enterprise. And they will have to be agreed upon both with the trade union and with the employees themselves, so the approach to establishing the amount of incentive payments should be as objective as possible.

One of the progressive and most modern forms of remuneration is commission. It allows you to establish a direct relationship between an employee’s salary and his work achievements, thus stimulating him to better results.

More details about the advantages and disadvantages of this system below.

Place of payment of wages

Salaries are paid to the employee, as a rule, in the following ways (Part 3 of Article 136 of the Labor Code of the Russian Federation):

• in cash at the place where he performs the work;
• by non-cash transfer to the employee’s bank account specified in the application.

An employee has the right to change the bank where his salary is transferred, having previously notified the employer in writing no later than 5 working days before the day the salary is issued.

Another comment on Art. 129 Labor Code of the Russian Federation

1. In Art. 129, which opens ch. 20 “General Provisions”, basic concepts and definitions are formulated. These definitions generally reflect the ideas prevailing in the science of labor law on issues of remuneration.

2. As amended, Part 1 of Art. 129 of the Labor Code of the Russian Federation identifies the concepts of wages and remuneration for an employee, while previously these concepts were different: wages were understood as a system of relations developing between the parties to an employment contract regarding the establishment and implementation of payments for labor, and wages were the actual remuneration for work.

3. Wages (employee remuneration) means remuneration for work, the amount of which is determined by the qualifications of the employee, the complexity, quantity, quality, and conditions of the work performed. In addition, compensation and incentive payments are included in wages. The first includes payments that compensate for unfavorable working conditions and the conditions of the place where work is performed, and the second includes payments that stimulate the achievement of certain quantitative and qualitative labor results.

4. In the previous wording of Art. 129 of the Labor Code of the Russian Federation contained a number of definitions of terms characterizing the tariff system and its individual elements - tariff rate (salary), tariff classification of work, tariff category, qualification category, tariff schedule. Currently, the definitions of these terms are contained in Art. 143 of the Labor Code, and in the commented article only a few are defined: the tariff rate, salary (official salary) and basic salary (basic official salary) and the basic wage rate.

The tariff rate is associated with the employee’s fulfillment of labor standards, and the salary (official salary) is associated with the employee’s performance of labor duties per unit of time—a calendar month.

Pros and cons of commission forms of remuneration

The undeniable advantages of introducing this form of remuneration:

• it directly affects the productivity of employees, which has a positive effect on the results of the enterprise’s economic activities;
• there is a direct connection between the result of performing the assigned work and the amount of earnings of employees;
• is a working tool for increasing employee interest in increasing labor productivity in order to receive higher wages;
• a large selection of varieties in the form of establishing floating and fixed commission percentages depending on the type of activity of the enterprise.

Significant disadvantages include:

• the complexity of calculations and difficulties in obtaining reliable information about the company’s economic results on which commissions are calculated;
• the reluctance of some employers to establish a basic minimum that an employee would be entitled to in any case, regardless of the results of his work for the reporting month.

***

A distinctive feature of commission-based wages is that with its implementation, employees’ earnings become directly dependent on the results of their work.

There are two types of commission payment for labor: it is calculated as a percentage of sales/production or it involves the approval of a minimum salary, which, depending on the employee’s performance, can grow exponentially due to an increase in the commission portion of earnings. The employer chooses one of these schemes depending on the specifics of the company’s activities.

Advantages and disadvantages

The advantages of a specific form of payment include:

• increasing employee interest as a result of work;
• increase in product sales volumes;
• the employee’s ability to independently plan and calculate earnings;
• implementation of the employee’s initiative ability (independent determination of the work plan).

The disadvantages include:

• Lack of stability in salary level.
• Sales volumes may not be regulated by the employee.
• The market situation affects the salary.

Chord system of remuneration