Commissions and incentives
In one sentenceVariable amounts paid to the employee on top of the fixed salary for sales made or a target reached, according to written rules the business sets in advance.
Simply put
A commission is a percentage of sales or collections, and an incentive is an amount paid on reaching a target. Both link the employee's income to results.
Write the rules before the period starts: the rate, whether it is calculated on sales or on collections, and the effect of returns. Then record them as an expense in the month the sales were made, even if paid later.
Worked example
A sales representative at a distribution company made sales of 150,000 SAR in the month. The company's policy is a 2% commission (an assumed rate for illustration) and an incentive of 1,000 SAR for exceeding the target, which he exceeded.
Commission: 150,000 × 2%3,000
Incentive for exceeding the target1,000
Dr Commissions and incentives expense4,000
Cr Commissions and incentives payable4,000
Amount added to the representative's salary4,000 SAR
Formula: Commission = sales × commission rate
Don't confuse it with
Annual bonusA commission is tied to each employee's sales every month, while the annual bonus is usually decided once a year based on the business's results or performance appraisal.
in FullScreen ERP
User performance evaluation shows each cashier's sales, returns and discounts. Sales and POS