Working on a Commission Only Basis: Good or Bad Idea?

[billie1]

Hello

I recently started a recruitment business and I'm thinking of hiring strong sales people to work on a commission only basis (on successful placement of a candidate in a role).

Is that a good or bad idea? Would people work on a commission only basis in this sector?

Also I was thinking of a commission percentage of 40% of job placement fee. Is this too low or two high?

This is all new to me so please tell me if am expecting too much.

Thanks

 

[Suzina]

You will need to pay them minimum wage...the only times I've worked for 100% comission (when legal!) the companies have been unstable and folded. I wouldn't work for anyone who thought I was that gullible! If you want good people be prepared to pay them properly; just get legal advice about probationary periods and reasonable target setting.

 

[Successful Selling]

Also I was thinking of a commission percentage of 40% of job placement fee. Is this too low or two high?

40% of what?

Most recruitment agencies charge the client a percentage of the candidates yearly salary. In this case that is zero (as they are commission only).

 

[billie1]

I meant 40% on the fee I get paid for successfully placing candidates in a role.

 

[who_me]

[quote=billie1;670358]

I recently started a recruitment business and I'm thinking of hiring strong sales people to work on a commission only basis (on successful placement of a candidate in a role).

Is that a good or bad idea? Would people work on a commission only basis in this sector?

Also I was thinking of a commission percentage of 40% of job placement fee. Is this too low or two high?

This is all new to me so please tell me if am expecting too much.

Thanks[/quote]

As Suzina said, employment law covers every type of employee, including part time, contractors and even self employed, the minimum wage cannot be ignored but it’s not a lot and if the employment contract and job specification clearly defines what is expected you can still weed out the low performers easily.

If you're going into recruitment it might be worth having a brush up on the legislation... especially if you're supplying part timers and temporary positions because the law that governs those employees entitlement would also potentially offer you additional income that you may not have currently been aware of?

 

[mobyme]

It is possible to get people to work on commission only, although technically to do that they need to be an agent. Whatever you do; do not advertise for self employed people to work on a commission only basis as this opens a whole can of worms. Several Double glazing firms have come unstuck recently finding themselves liable for the tax which had not been paid by their "self employed" people. The revenue are saying that if they have to report to a office, even if it's only once a month, keep any predetermined appointments set up by you, are required to answer a telephone which has your number and finally are not free to engage in direct competition to you; then they are employed.
It would seem however that each Chief Tax Inspector has his own interpretation and things can be different in different areas of the country. Better to be on the safe side.

 

[billie1]

If I supply self employed sale persons with a contract stating that they are self employed and responsible for paying their own tax and NI contributions then I guess I wont be liable.

 

[Vending Siting Services]

I see no harm in paying someone on commission only in a sales role, provided the job they are doing has potential and earnings are achieveable realistically.

We have a couple who work for us on commission only - they earn a lot of money - much more than most of the workers here - and they have been with us long term.

We always put the commission people onto a couple of weeks trial where we will pay them a minimum of £8-£10 per hour to give them the confidence that they can earn more going the commission route. The ones who succeed will go onto commission within a couple of days as they are much better off and the ones who do not make the grade realise that they are not able to place the business but have at least been paid for their time and effort.

Regards.

Barbara

 

[Suzina]

If I supply self employed sale persons with a contract stating that they are self employed and responsible for paying their own tax and NI contributions then I guess I wont be liable.

You can't decide if they are self employed...HMRC do and the rules are pretty clear! If they only work for you, or cannot subcontract the work to others and decide thier own pay rates, hours and holidays etc. they will be deemed to be employed. This is exactly what someone tried on me years back and they got caught and had big fines to pay. I now work for me, employ others 'properly', and keep the profits...much nicer!

You really should talk to someone who knows about this stuff before you get into trouble or even just end up with a business plan that's not useable/ is thrown out by the bank etc as unprofessional / not well researched; have you tried business link? or someone similar? Or if you phone HMRC they will quite happily explain everything to you as they go out of thier way to ensure employers stay the right side of the law. They'll send you info packs as well.

 

[james_nic]

Several years ago I dipped my toes into a commission only job and I did very well - obviously I was happy until I spent almost 2 weeks at ground Zero when I couldn't sell a thing! Now my point from this bad experience, was that with no basic wages, I became very disheartened which obviously affected my performance greatly! I mean, I was working for nothing! Your staff morale needs to be kept high. I would always offer a basic because they will pack up and leave for another job (which I did!) and this worked out much better for me obviously!

 

[Successful Selling]

I meant 40% on the fee I get paid for successfully placing candidates in a role.

I still don't understand this.

You get 40% of the fee for placing a succesful candidate. How do you decide 'the fee' and where is the other 60% of the fee going?

 

[Speedymail]

You will need to pay them minimum wage...the only times I've worked for 100% comission (when legal!) the companies have been unstable and folded. I wouldn't work for anyone who thought I was that gullible! If you want good people be prepared to pay them properly; just get legal advice about probationary periods and reasonable target setting.

Spot on. No sales = no business. Too many employers think they can nobble salespeople with crap £££ then wonder where all the good ones are.

 

[Mat_D]

Spot on. No sales = no business. Too many employers think they can nobble salespeople with crap £££ then wonder where all the good ones are.

Get over yourself. Nobody is trying to "nobble" anyone.

Employing commission only salespeople makes perfect sense to me - They are highly motivated by the fact that they don't get paid if they don't sell, and there's no risk to the business if nothing is sold.

 

[Dean1970]

Does any Know where to find out the Law on commission only sales.

Do these personel have to be sales agents or selfemployed?

 

[suzimarie]

i worked for a company not really looking much into depth about commission based wage. I now regret it as i have had to leave due to the fact that i wasn't earning anything from my sales and found it quite difficult and so i was working rediculous hours with no money coming in and the expenses were extautionate. Commission only is a risky for of wage when people have bills to pay, i would have been happier being paid minimum wage than nothing at all!

 

[david poole]

hello.
I think you would have to recruit people from out of the recruitment sector.
many rec agencies will give a bare basic of £15,000 depending upon area and recruitment sector. here in derby the lowest basic for a junior seems to start at £17,000

My first thought is that you'll find it very difficult to attract anyone.

You might be better off going it alone and charging 40% less?

many agencied will charge between 10-20%
what if you just had a flat fee arrangement?

lets say £1000 per appointment...... 5 a month gives you £5000


How to get 5 a month! well you need to find companies that use multi agency, and also find some that will give you exclusivity.

So for example. company ABC wants 3 techs at £20,000, the cheapeast agencies will be charging £6000 for that...however for 1 months exclusivity you'll charge £3000


good luck

david

 

[david poole]

With all due respect to Suzi marie, if she had worked for me I'll be happy i hadnt paid her a basic if she had not made a ROI.

However saying that basic salaries are important, it covers a few bills and takes the pressure off.

if you are still really wanting tobe commission only try something like this...and of course adjjust to what you think is best.


£200 per week basic = 10% commission

£100 per week basic = 20% commission

£50 per week basic = 30 % commission

£0 basic = 40 % commission

 

[scologic]

We use a number of commission based guys. They do work for other semi related companies that compliment our business. One of our guys is doing really bad with landed sales but is sitting on a potential sales comission of 1M over the next 2 years. As a Saleried member of staff he would have only got 30 - 50k with a commission of around 150k for the same contract.
Whilst no sales no commission it keeps the guys keener the rewards are far greater. They also have the freedom to use their skills and contacts to different ends. Therefore they can be even more successful.

It's not a bad way to do business.

 

[Richie N]

Hello

I recently started a recruitment business and I'm thinking of hiring strong sales people to work on a commission only basis (on successful placement of a candidate in a role).

Is that a good or bad idea? Would people work on a commission only basis in this sector?

Also I was thinking of a commission percentage of 40% of job placement fee. Is this too low or two high?

This is all new to me so please tell me if am expecting too much.

Thanks

I know of some agencies that do this, basically the consultants will need to be self-employed and this you will need to prove to HMRC if they question it.
Usually consultants working on commission only get 70% of the fee, but for the 30% you retain, you need to cover costs such as advertising, accounts, factoring, stationery, website/email etc.
I wouldn't recommend paying them the full commission up front on placement, do half on start and half when the invoice gets paid or rebate terms are completed.

 

[Adam R]

Hi Guys,

I find myself in a similar position to the original poster. Basically I have started my own recruitment agency a few months ago as I wanted greater independence and the chance to make large money. However, a friend of mine who I have previously worked with at a leading recruitment firm is interested in joining the business with me. He understands that there will be risks and that the business will be unstable at first and so is happy to work on a commission only basis. Something along the lines of he earns 70% of everything he brings in and I take 30% for business costs / advertising ect.

I did want to make sure that I am not falling foul of the law in anyway though. Is it legal for me to employ him on a purely commission basis or do I need to pay National Minimum Wage ect?

Hope someone can help!

Thanks.

Adam

 

[Sharpy]

No offense intended to any commission only sales people present, but the main concern I have with commission only is the quality and longevity of the potential employees you attract.

It's just my personal opinion, but all of the successful sales people in secure sales jobs that I know, receive a basic salary aswell as commission. Their motivation can't be brought into question either, because they are money driven.

I think motivating someone using the stick of "if you don't sell, you can't pay your rent" works with many people at all, certainly not in the long term.

 

[Adam R]

I would only pay commission only to my friend as I know he is an a really good recruiter and asked for the commission only pay scheme himself. Also if he makes 1 perm deal at 10k he earns himself a nice 7k out of that so there is definitely potential for us to both earn money.

If I were to take on any future staff I would certainly pay them a reasonable salary of around 15-25k but with a much lower commission structure (20%)

However, I need to be sure that I am legally allowed to employ him on this basis?

Any advice appreciated.

 

[KDMINX]

I employ Commission-only sales people.

Generally you are looking for people who want to work for themselves but don’t want the hassles of actually running the business.

You have to pay comm-only sales people much more than salaried employees, but then again they are taking a risk. I strongly believe in staggering commissions eg.

Up to £20k pcm 10%
20-40k 20%
40k+ 30%

Obviously the numbers have to fit the product / salesperson.

 

[telemax]

Hello

I recently started a recruitment business and I'm thinking of hiring strong sales people to work on a commission only basis (on successful placement of a candidate in a role).

Is that a good or bad idea? Would people work on a commission only basis in this sector?

Also I was thinking of a commission percentage of 40% of job placement fee. Is this too low or two high?

This is all new to me so please tell me if am expecting too much.

Thanks

I used to do comms only sales. I never used to touch it with a bargepole unless the company could actually prove that they were doing well and making sales, otherwise I was wasting my time.

 

Much depends on the barriers to entry, and what skill or contact base you are providing them with.

If all you provide is a desk and phone and they have to make their own contacts you will find that the cream of the crop will use you for experience and then set up on their own.

A basic salary creates a comfort zone which makes jumping ship slightly psychologically more diffiicult.

Legally speaking, as they are self employed you cannot pin them down to hours of work or prevent them from doing other work (except in the same industry)

 

[KDMINX]

If all you provide is a desk and phone

Then they are employees and you need to pay them minimum wage!

 

[steviemac]

Then they are employees and you need to pay them minimum wage!

not necessarily. Remax estate agents supplied a desk and a phone for their commision only self-employed sales staff. Doesn't mean your are an employee.

 

[KDMINX]

not necessarily. Remax estate agents supplied a desk and a phone for their commision only self-employed sales staff. Doesn't mean your are an employee.

Then Remax are probably facing a BIG bill!

If I worked for Remax:

Could I send the mrs along instead of me one day?
Could I make up my own hours?
Could I take as much holiday as I like?

I don't think there is any grey area on that example! THEY ARE EMPLOYEES!

 

[steviemac]

I don't see how being given the use of a desk and phone means you must be an employee? I've worked as a commission only sales person previously in a pretty big double glazing company, I had use of my own desk and a phone. I wasn't paid a salary, I was commission only. You didn't have to report to your desk at 9am and work to 5pm, It was purely there for when you called into the ofice to do paperwork and make a few calls etc. That's the way Remax agents work as well.

I can't imagine a huge global company like Remax getting the rules wrong surely? Not saying I'm definitely right, but I've certainly never heard that rule before in my self-employed experience.

If I am wrong then it's a new one for me.

 

[MrPAYE]

not necessarily. Remax estate agents supplied a desk and a phone for their commision only self-employed sales staff. Doesn't mean your are an employee.

I spend half my life telling clients that this way of thinking is as useless as a chocolate teapot.

For one, do you know the EXACT arrangements under which the sales staff worked for remax and if/how these individuals were taxed ? I would guess not unless you were one of them. Or is this the old "my mate down the pub told me" scenario ?

Secondly, and most importantly, HOW do you know that HMRC are quite happy with the arrangement or that Remax has not had a huge settlement to pay for getting it wrong ? Unless you were part of the Remax finance/tax team you wouldn't.

Thirdly, even if you were correct, such an argument would hold absolutely no water with HMRC for any other business unless you could provide HMRC facts, figures and copies of correspondence to backup how HMRC dealt with Remax and only then if it was an identical situation to the one for the OP. Clearly due to confidentiality reasons, no client/accountant/advisor would be happy going down this route.

As I so often tell clients - just because Ltd co or plc down the road is doing something doesn't necessarily mean they are doing it right. As has been proved, often painfully, many many times before.

 

[steviemac]

I spend half my life telling clients that this way of thinking is as useless as a chocolate teapot.

For one, do you know the EXACT arrangements under which the sales staff worked for remax and if/how these individuals were taxed ? I would guess not unless you were one of them. Or is this the old "my mate down the pub told me" scenario ?

Secondly, and most importantly, HOW do you know that HMRC are quite happy with the arrangement or that Remax has not had a huge settlement to pay for getting it wrong ? Unless you were part of the Remax finance/tax team you wouldn't.

Thirdly, even if you were correct, such an argument would hold absolutely no water with HMRC for any other business unless you could provide HMRC facts, figures and copies of correspondence to backup how HMRC dealt with Remax and only then if it was an identical situation to the one for the OP. Clearly due to confidentiality reasons, no client/accountant/advisor would be happy going down this route.

As I so often tell clients - just because Ltd co or plc down the road is doing something doesn't necessarily mean they are doing it right. As has been proved, often painfully, many many times before.

take it easy! lol I am only addressing the issue in question...ie does having use of a desk and a phone make you automatically an employee.
I'm not defending Remax. I worked closely with them for a couple of years thats how I saw how their agents operated. Maybe you are right, maybe you are wrong, but remax arent really the matter in question.


The issue is - does having the use of a desk and phone automatically in any company mean you must be an employee.

thats what I am trying to address, based on my own self employed experience.

 

[MrPAYE]

take it easy! lol I am only addressing the issue in question...ie does having use of a desk and a phone make you automatically an employee.
I'm not defending Remax. I worked closely with them for a couple of years thats how I saw how their agents operated. Maybe you are right, maybe you are wrong, but remax arent really the matter in question.


The issue is - does having the use of a desk and phone automatically in any company mean you must be an employee.

thats what I am trying to address, based on my own self employed experience.

Takes deep calming breaths :redfaceme website is down at the minute so some hair pulling is going on..)

Anyways, to answer your question. Having a desk and a phone doesn't automatically mean employment - for the simple reason that those two factors alone are unlikely to be material in their own right, there will be more important points to consider.

However, at the very least they would not be helpful - especially if combined with a company email address, name on telephone extension list, regular attendance, etc etc.

 

[steviemac]

hope you get your site back up....hate it when that happens!

 

[Lee Jones Jnr]

100% commission sales agents are almost exclusively students and people with a low employment desirability. The churn rate is very high and potentially they can damage your business if they mis-sell (which they will).

 

[KDMINX]

100% commission sales agents are almost exclusively students and people with a low employment desirability. The churn rate is very high and potentially they can damage your business if they mis-sell (which they will).

I've never met a comm only sales person who is a student!

Mostly they are people who want more freedom than an employed role and don't want a 20 year old "sales manager" criticising their every move.
Could an employee take a day out ever month to get her hair and nails done? Could an employee play golf every Friday afternoon? I know there are lots of employees who do this (particularly in sales) but if they’re self employed, comm only, they can be open about it.

I’m not saying it’s for everyone. Both of my comm. only sales people are in their 30s, they own their cars and houses outright so the money they earn pays for their lifestyle and a potential early retirement. It doesn’t matter to them if their income varies drastically from one month to another it’s the figure at the end of the year that matters and trust me it’s a big one!

How many employees in their 30s can say that?

 

[KDMINX]

See below from the HMRC website, for a sales person (estate agent) a desk and a phone would probably constitute "the main items of equipment they need to do their job".

Plenty of "big" companies work outside the law on this. Either they don't know or they don't care! But they should!

From HMRC website:

As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:

• Do they have to do the work themselves?
• Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
• Can they work a set amount of hours?
• Can someone move them from task to task?
• Are they paid by the hour, week, or month?
• Can they get overtime pay or bonus payment?

If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:

• Can they hire someone to do the work or engage helpers at their own expense?
• Do they risk their own money?
• Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
• Do they agree to do a job for a fixed price regardless of how long the job may take?
• Can they decide what work to do, how and when to do the work and where to provide the services?
• Do they regularly work for a number of different people?
• Do they have to correct unsatisfactory work in their own time and at their own expense?

http://www.ukbusinessforums.co.uk/forums/#top​

 

[Lee Jones Jnr]

I've never met a comm only sales person who is a student!

Mostly they are people who want more freedom than an employed role and don't want a 20 year old "sales manager" criticising their every move.
Could an employee take a day out ever month to get her hair and nails done? Could an employee play golf every Friday afternoon? I know there are lots of employees who do this (particularly in sales) but if they’re self employed, comm only, they can be open about it.

I’m not saying it’s for everyone. Both of my comm. only sales people are in their 30s, they own their cars and houses outright so the money they earn pays for their lifestyle and a potential early retirement. It doesn’t matter to them if their income varies drastically from one month to another it’s the figure at the end of the year that matters and trust me it’s a big one!


How many employees in their 30s can say that?

If you say so.
All your points seem to be about the benefit of being self employed rather than an employee.

The only firms I know that work on 100% commission are telecoms and double glazing - two industries with less than stellar reputations.

 

[KDMINX]

If you say so.
All your points seem to be about the benefit of being self employed rather than an employee.

The only firms I know that work on 100% commission are telecoms and double glazing - two industries with less than stellar reputations.

And: Mortgages, Insurance, Pensions, Investments, Advertising, Web Design, SEO. and about a hundred others!

Almost every product that needs selling will have sales people who want the flexibility and earning potential of self employed commission only...

 

[Lee Jones Jnr]

And: Mortgages, Insurance, Pensions, Investments, Advertising, Web Design, SEO. and about a hundred others!

Almost every product that needs selling will have sales people who want the flexibility and earning potential of self employed commission only...

Web design and SEO are not sales roles.
Financial advisers are generally self employed.
Advertising is generally basic plus commission.

If you think that most sales roles are 100% commission then that's fine.
I shall continue to believe that most sales roles are basic plus commission.

 

[KDMINX]

Web design and SEO are not sales roles.
Financial advisers are generally self employed.
Advertising is generally basic plus commission.

If you think that most sales roles are 100% commission then that's fine.
I shall continue to believe that most sales roles are basic plus commission.

Don’t misrepresent what I said!

I didn’t say “most sales roles are 100% commission” my point was that in almost all sales areas there are people working 100% commission. They usually earn much more money and have much easier lifestyle than their cousins who get a basic wage / retainer.

I know loads of SEO / Web design guys that work with a 100% commission salesperson.