Commission Agreement (New Zealand)

A Commission Agreement in New Zealand appoints one party to promote or sell on the other's behalf and sets the commission, territory, and duties owed under the Employment Relations Act 2000.

Commission-based sales roles are common across New Zealand industries including real estate (governed by the Real Estate Agents Act 2008), financial services, insurance, technology and SaaS, retail, and professional services. Unlike commission structures in some overseas jurisdictions, New Zealand employment law imposes minimum wage protections under the Minimum Wage Act 1983 that apply regardless of commission earnings — meaning an employer cannot rely on commission payments to bring an employee's total remuneration up to the minimum wage if their base salary is insufficient.

The Employment Relations Act 2000 is the primary statute governing the employment relationship for commission-based staff in New Zealand. Section 4 of the ERA imposes a duty of good faith on all parties, requiring them to be active and constructive in maintaining a productive employment relationship and to be responsive, communicative, and not deceptive. This duty applies throughout the employment relationship, including the negotiation and implementation of commission structures. Section 65 of the ERA requires any variation to the terms of employment — including changes to the commission structure — to be made in writing and agreed by both parties.

The Wages Protection Act 1983 is a critical piece of legislation for commission agreements. This Act governs the payment of wages and the circumstances in which deductions can be made from wages. Under section 5 of the Wages Protection Act 1983, deductions from wages generally require the employee's written consent. This means that any clawback provision that allows the employer to recover previously paid commission by way of deduction from future wages must be clearly set out in the commission agreement and agreed to in writing by the employee before the employer can lawfully make such a deduction.

The KiwiSaver Act 2006 introduces an important dimension to commission-based remuneration in New Zealand. Unlike Australia's compulsory superannuation system, KiwiSaver is technically voluntary for employees (who can opt out), but once enrolled, the employer is obliged to make compulsory contributions of at least 3% of the employee's gross salary or wages. The interaction between commission payments and KiwiSaver contributions depends on whether the commission is characterised as part of 'gross salary or wages' for KiwiSaver purposes — a question that can be complex for irregular or incentive-based commission structures.

The Contract and Commercial Law Act 2017 (CCLA) consolidates the former Contractual Remedies Act 1979 and other contract statutes, and provides the general framework for contractual obligations and remedies in New Zealand. Commission agreements that include penalty-style clawback provisions — for example, provisions that require the employee to repay far more than the commission originally received — may be scrutinised under the CCLA's provisions on penalty clauses and unconscionable contracts.

A Commission Agreement is needed whenever a New Zealand employer wishes to include a commission-based component in the remuneration of a sales employee. It is particularly important for business development managers and account executives, real estate agents and property managers (regulated under the Real Estate Agents Act 2008), insurance brokers and financial advisers (regulated under the Financial Markets Conduct Act 2013), retail sales staff who earn commissions on product sales, technology and SaaS sales representatives, and any employee whose total remuneration includes a variable commission component.

The first and most important reason a written commission agreement is needed is legal clarity. Without a written commission agreement that clearly defines the commission rate, the calculation base, the eligible sales, and when commission is paid, disputes about commission entitlements are almost inevitable. An employee who believes they are entitled to commission on sales that the employer considers excluded will have a strong basis for a personal grievance or a breach of contract claim if the terms of the commission arrangement are not clearly documented. A well-drafted commission agreement removes this ambiguity and provides a clear framework for calculating, paying, and disputing commission.

A commission agreement is needed to comply with the Wages Protection Act 1983. If the employer wishes to include a clawback provision — which allows the employer to recover commission paid if a customer subsequently cancels or defaults — the employee's written consent is required under section 5 of the Act. Including a clearly drafted clawback provision in the commission agreement provides the necessary written consent, but only if the agreement is signed by the employee before the relevant commission payments are made.

A commission agreement is needed to address the interaction between commission and annual leave calculations under the Holidays Act 2003. The Holidays Act requires annual leave pay to be calculated using the greater of ordinary weekly pay or average weekly earnings. For commission earners, average weekly earnings over the preceding 12 months may significantly exceed their ordinary weekly pay based on base salary alone. Without a clear, documented record of all commission payments, calculating annual leave pay correctly is extremely difficult. A commission agreement that sets out when commission is paid and how it is recorded supports accurate Holidays Act compliance.

A commission agreement is also needed to address the KiwiSaver implications of commission payments. Whether employer KiwiSaver contributions are payable on commission depends on whether the commission constitutes 'gross salary or wages' under the KiwiSaver Act 2006. Documenting the commission structure in a formal agreement — and obtaining specialist payroll advice about the correct KiwiSaver treatment — helps the employer meet its KiwiSaver obligations correctly and avoids the risk of underpayment of employer contributions.

Finally, a commission agreement is needed to specify what happens to commission entitlements when employment ends. New Zealand employment law provides limited statutory guidance on the treatment of commission on termination, leaving this primarily to the terms of the employment agreement. A commission agreement that clearly defines when commission is 'earned' and what the employee is entitled to receive on termination provides both parties with certainty and reduces the risk of a personal grievance or a civil claim following the end of the employment relationship.

A thorough New Zealand Commission Agreement should include the following key elements, each grounded in specific legislation or employment law principles.

The parties and date section identifies the employer (with NZBN) and the employee, and records the date of the agreement. The agreement should identify itself as supplemental to the employee's Individual Employment Agreement and state that it must be read together with the IEA.

The role and employment type clause records the employee's job title, employment type (full-time or part-time), commencement date of the commission arrangement, region of employment, and sales territory or product lines. The sales territory clause is important because it defines the scope of the employee's commission-earning potential and may inform the reasonableness of any post-employment restraint of trade clause in the IEA.

The base salary and KiwiSaver clause specifies the guaranteed annual base salary, exclusive of commission and KiwiSaver, the pay frequency, and the employer's KiwiSaver contribution rate (minimum 3% under the KiwiSaver Act 2006). This clause must confirm that the base salary meets or exceeds the adult minimum wage under the Minimum Wage Act 1983.

The commission structure clause is the heart of the agreement. It must specify the commission rate or rates (flat or tiered), the commission calculation base (which for New Zealand should be expressed exclusive of GST at 15% under the Goods and Services Tax Act 1985), the eligible sales and exclusions, and when commission is paid. For tiered commission structures, the revenue thresholds must be clearly defined in NZD.

The clawback provision clause (if included) must comply with the Wages Protection Act 1983 by obtaining the employee's express written consent to deductions from future wages to recover commission paid on cancelled or uncollected sales. The clause must be clear and specific about the circumstances in which clawback applies and must not allow clawback that would reduce the employee's pay below the minimum wage.

The sales targets and KPIs clause sets out the quantitative targets and performance indicators applicable to the role and the consequences of not meeting them. Under the ERA, failure to meet sales targets alone is not a valid ground for dismissal without a fair process.

The leave and commission clause addresses the interaction between commission payments and leave entitlements under the Holidays Act 2003, particularly the requirement to calculate annual leave pay using the greater of ordinary weekly pay or average weekly earnings (which may include commission).

The termination and commission clause specifies the notice period required to terminate employment and the employee's entitlement to commission on termination. It should define clearly when commission is 'earned' and whether commission is payable on sales contributed to but not yet invoiced as at the termination date.

The governing law clause confirms that the agreement is governed by the laws of New Zealand, including the ERA, Minimum Wage Act 1983, Wages Protection Act 1983, Holidays Act 2003, KiwiSaver Act 2006, CCLA 2017, and Income Tax Act 2007. The forms-legal.com Commission Agreement (New Zealand) provides a ready-to-use template that meets New Zealand legal requirements.