A comfort advisor sells a $12,000 heat pump system. On a 5% revenue commission, they earn $600. That much is simple. The questions that cause trouble come later: was the $12,000 before or after the utility rebate, does the advisor get paid if the customer's financing falls through, and what happens to the $600 if the job is canceled in week three?
Who gets commission in a trade shop?
Commission shows up in three places. Comfort advisors are usually paid mostly on commission, because their whole job is selling replacement systems. Service technicians are more often paid hourly with a smaller commission on top, sometimes only on sold options, add-ons or memberships rather than on every repair. Install crews are rarely on commission, though some shops pay installers a share when a sold system goes in on time and without a callback. Whichever roles you include, keep one written plan per role so two people doing the same job are paid by the same rules.
How is commission calculated?
Formula
The rate gets the attention, but the commissionable amount decides most of the outcome. Common choices:
| Base | What's included | Good for | Watch for |
|---|---|---|---|
| Revenue before tax | Invoice subtotal | Service techs; simple and checkable | Rewards discounts as much as full price |
| Revenue minus pass-throughs | Subtotal less financing fees, permits or rebates | Replacements with large fees | Define every deduction in writing |
| Gross profit | Revenue minus materials, labor and other job costs | Comfort advisors, large installs | Needs accurate, timely job costing |
| Collected amount | Payments actually received | Shops with collection problems | Delays pay, which techs dislike |
Revenue vs gross-profit commission: a worked example
Here's the same sale under two plans, with and without a $1,000 discount. Numbers are illustrative; the job cost is $6,000.
| 5% of revenue | 12% of gross profit | |
|---|---|---|
| Full price: $12,000 revenue, $6,000 gross profit | $600 | $720 |
| Discounted: $11,000 revenue, $5,000 gross profit | $550 | $600 |
| Seller's pay cut from the discount | −$50 | −$120 |
| Company's gross profit cut | −$1,000 | −$1,000 |
On a revenue plan, the seller gives away $1,000 of company margin at a personal cost of $50. On a gross-profit plan, the cost is $120, so the seller has more reason to hold price. Gross-profit plans need a reliable gross margin per job, which means costs entered before commission is calculated. If you're converting a markup into a margin to set rates, the calculator below does it both ways.
Free calculatorMarkup vs margin calculatorConvert markup to margin (and back) so your prices actually hit your margin target.When is commission earned?
| Earned at | Pros | Cons |
|---|---|---|
| Sale (signature) | Motivating, immediate | Needs clawbacks for cancellations and financing declines |
| Completion | Pays for work that happened | Seller waits for the install schedule |
| Collection | No pay on bad debt | Longest wait; pay depends on the office's follow-up |
Any of these is defensible. What isn't defensible is a plan that doesn't say. Put the trigger in writing, together with what happens on a cancellation, refund or chargeback, and for how long.
Tiered commission: whole period or marginal?
Tiers raise the rate as sales grow. The plan has to say how the higher rate applies.
| Example: 4% up to $30,000, 6% above; $40,000 sold this month | Pay |
|---|---|
| Marginal: 4% × $30,000 + 6% × $10,000 | $1,800 |
| Whole period: 6% × $40,000 once the tier is reached | $2,400 |
The whole-period method rewards a strong finish more, and it means the last sale of the month can be worth a lot more than the first. Either works if the plan says which one it is.
Commission, overtime and minimum wage
Federal rules treat commission as payment for hours worked that must be included in the regular rate, whether it's the only pay or on top of an hourly wage, and however often it's calculated or paid.1 When it's paid weekly, you add it to the week's other earnings, divide by total hours, and pay an extra half of that rate for each hour over 40.2 A commission-only tech must also earn at least minimum wage in every workweek.
Our article on hourly, commission and hybrid pay plans covers monthly commissions, refunds after payout, the section 7(i) exemption, and the states that require signed written commission agreements. It's general information, not legal advice.
For withholding, the IRS lists commissions among supplemental wages, and the optional flat federal withholding rate for 2026 is 22%.3
What should a written commission plan include?
Commission plan essentials
- Who is covered: role or named employee, and effective date
- Commissionable amount, with every inclusion and deduction
- Rate, tiers and whether tiers are marginal or whole-period
- When commission is earned and when it's paid
- Credit splits between seller and installer
- Cancellations, refunds and chargebacks: what's clawed back and for how long
- What's paid after the employee leaves
- How overtime is calculated in weeks over 40 hours
- Signatures and date
How TradesWork handles commission
TradesWork performance pay pays commission as a percentage of revenue before tax or of gross profit, triggered when sold, when completed or as collected, with up to 10 tiers per rule where the highest tier reached applies to the whole period. A gross-profit commission waits until every matched line has a cost, using job costing, rather than paying on a guess. Techs see each line on My pay, worded like "5% of $4,200 = $210".
Footnotes
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29 CFR 778.117, Commission payments, general, Electronic Code of Federal Regulations. ↩
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29 CFR 778.118, Commission paid on a workweek basis, Electronic Code of Federal Regulations. ↩
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Publication 15 (2026), Employer's Tax Guide, Internal Revenue Service, section 7, Supplemental Wages. ↩
