How does commission-only employment work?

Commission-only employment is unique to the real estate industry and is an attractive way to engage appropriately qualified staff. But the rules surrounding this form of employment can be confusing.

The first thing to observe is that commission-only employment should not be confused with independent contracting. They are entirely different forms of engagement.

Independent contracting is a commercial “business-to-business” relationship. It is a conjunction arrangement between two “bona-fide” and separately licensed businesses and should be treated as such. It is not a form of employment.

In contrast, commission-only is a form of employment and one where the employee is rewarded entirely by a commission arrangement.

Under the Real Estate Industry Award 2020 (the Award), where an employer wants to employ someone on a commission-only basis, they need to ensure the employee meets a range of qualifying criteria. Importantly, they must achieve the Minimum Income Threshold Amount (MITA).

A failure to satisfy all of the commission-only qualifying criteria, prior to employing a commission-only employee, might leave an employer exposed to having to repay the employee what they should have been paid had they been correctly employed as a salaried employee. It can be a costly error and one that is easily avoided if the employer follows the commission-only rules of engagement.

Who is eligible to be employed on a commission-only basis?

The graphic below explains who is eligible to be employed on a commission-only arrangement. To be engaged on a commission-only basis, an employee must satisfy all of the following criteria. They must:

1. Be employed in either property sales or commercial, industrial or retail leasing at the Real Estate Employee Level 2 (Representative Level) or higher. They cannot be employed at the Real Estate Employee Level 1 (Associate Level), as a casual or junior, or as a trainee.

2. Agree in writing to be remunerated on a commission-only basis and have a written agreement that sets out the basis upon which the commission is to be calculated.

3. Have been issued with either a Real Estate Licence or be registered or permitted to perform the duties of a real estate salesperson under the relevant state or territory real estate laws.

4. Have been employed in property sales or commercial, industrial or retail leasing for a consecutive period of at least 12 months in the three years prior to entering into the commission-only agreement.

5. Be at least 21 years of age.

6. Establish they have achieved the Minimum Income Threshold Amount (MITA).

Are commission-only employees entitled to be paid a salary and allowances?

Commission-only employees are not entitled to be paid a salary, a motor vehicle allowance or mobile phone allowances.

What is the MITA?

The MITA is a performance-based income target that must be satisfied to enable an employee to be lawfully employed on a commission-only basis. The MITA is the minimum income level that the salesperson must have received over a consecutive 12-month period during the last three years of employment.

How much is the MITA?

As of 1 July 2023, the MITA for a Real Estate Employee Level 2 (Representative Level) is currently $65,036. This figure increases in July each year in line with wage adjustments from the National Wage Decision.

Can an employer pro-rata the MITA?

No – employers cannot pro-rata the MITA for part-time employees in respect of qualifying for commission only employment or for the MITA review. A commission-only employee must be engaged on a full-time basis and therefore cannot be employed as a casual or part-time employee.

What evidence is needed to satisfy the MITA?

Real estate wages and commissions (not including allowances or superannuation) can be used in calculating the MITA but not income from other sources.

The employer may rely on any of the following documents as proof that the MITA has been satisfied:

• The employee’s individual payment summary.
• The employee’s pay slips.
• The employee’s commission statement records or other sales records.

The employer can request that the employee provide a statutory declaration stating the veracity of any documentation relied upon for the purposes of satisfying the MITA.

What is the annual MITA review?

It is an award requirement that the employer review the commission-only salesperson’s income level after each 12 months of employment. To enable the salesperson to continue working on a commission-only basis, the review must show that the salesperson’s income level in the preceding 12-month period satisfied the MITA.

When must the annual MITA review occur?

The timing of a commission-only employee’s mandatory annual MITA review will depend on their date of commencement under a commission-only arrangement with the agency.

Where a commission-only employee was engaged on or before 2 April 2018, their annual MITA review will be on 1 April in each subsequent year.

In the case of any employee employed after 2 April 2018, their first annual MITA review will be 12 months after their date of commencement.

What if an employee fails the annual MITA review?

Where a commission-only employee fails the annual MITA review, paying them by way of commission-only must cease. That is, they are disqualified from continuing to be paid on a commission-only basis.

Unless either the employer or the employee takes appropriate action to end the employment relationship, the commission-only employee’s employment will continue, and they must be paid wages and allowances from their annual MITA review date in accordance with the award.

Under the award, there is no “top up” requirement for an employer to make a payment to a commission-only employee for any shortfall from the MITA.

If an employee continues to be employed on a commission-only basis after failing an annual MITA review, serious consequences may result for the employer, including penalties for breach of the award and underpayment claims.

Can an employer terminate an employee for failing the annual MITA review?

Yes, an employer can terminate a commission-only employee where they fail an annual MITA review – but not before they have undertaken a procedurally fair process with them. If an employer terminates them without conducting this process, then terminating their employment will carry high risk.

If employers have an underperforming commission-only employee, they should commence performance management as a priority. Failure to do so will leave the employer and the agency exposed to a claim of either unfair dismissal or general protections, and penalties may be severe.

Are commission-only employees entitled to superannuation?

Yes – a commission-only employee must receive the superannuation guarantee amount, currently 11 per cent. Superannuation can be included in the employee’s commission split provided the commission rate meets the minimum amounts set out in the award.

Are commission-only employees entitled to leave entitlements?

Yes – a commission-only employee is entitled to accrue and be paid the NES entitlements such as annual leave, sick leave and long service leave. Commission-only employees, however, are not entitled to receive annual leave loading.

7 key commission only ‘takeaways’

1. Employers must not engage an employee on a commission-only arrangement in circumstances where the employee has not satisfied the qualifying criteria.

2. Employees cannot be forced onto a commission-only arrangement.

3. For employees who agree and are engaged correctly, employers should diarise the relevant annual review dates for all commission-only employees.

4. Employers should monitor the performance of commission-only employees throughout the 12-month review period. If performance is unsatisfactory, they should implement appropriate performance management processes prior to the review date.

5. Commission-only employees are entitled to be paid superannuation and leave entitlements.

6. Where an employee fails to satisfy a MITA review, the commission-only arrangement must end.

7. Employees should understand that in circumstances where they fail a MITA review, then subject to appropriate procedural fairness having occurred, it is likely that their employment will end.

Bryan Wilcox is the CEO of the Real Estate Employers’ Federation (REEF)