Commission and Spiff Math a Tech Should Check

Why this matters

"Eight percent on everything you sell" is one of the most misheard sentences in the trade. Eight percent of what: the ticket, the ticket less equipment, the gross profit? Paid when: at the sale, at the invoice, when the customer pays, when the finance company funds? Taken back when: the customer cancels, the job gets a warranty claim, the payment bounces? Each answer can move your check by a third or more on the same month of selling, and none of them shows up in the headline rate. A tech who knows how to rebuild their own commission from the statement catches the errors and, just as useful, stops being surprised by the parts that were never errors at all.

This is not personal financial or legal advice. It is a method for checking numbers you are entitled to understand.

Before you check anything: get the plan in writing

You cannot verify a calculation whose rules live in someone's memory. Ask for the written plan, and read it for four definitions:

• The base. What the percentage is applied to. Common bases, from most generous to least: the full ticket; the ticket less equipment and material cost; the ticket less cost and less fees (finance company dealer fees, card fees); gross profit after labor. Each step down can halve the money.
• The earning event. When a commission is earned, as opposed to when it is paid. Plans tie it to the signed contract, the completed install, the invoice, or the customer's payment.
• The chargeback rule. What happens when a sale cancels, refunds, or goes unpaid, and for how long after the sale that can happen.
• The spiff list. Which items carry a fixed bonus, how much, and whether spiffs charge back too.

The legal layer: federal law does not require a written commission plan. Some states do. California requires a written contract for commission pay that sets out how commissions are computed and paid, with a signed copy to you (Labor Code 2751). Where your state has no such rule, ask anyway. A shop that will not write the plan down has told you something.

Step 1: Rebuild the base for each job

For every line on the statement, recompute the base from the plan's own definition: ticket, minus whatever the plan says comes off. Why: the base is where most real disputes live, and the commonest one is a deduction the written plan never mentions, such as a finance dealer fee taken off the base when the plan says "ticket less equipment cost." What breaks if you skip it: you check the percentage, it multiplies correctly, and the statement looks perfect on a base that was wrong.

You often cannot see the shop's equipment cost. You can ask what figure was used and whether it is invoice cost or a standard cost, and you can check it is the same kind of number every month.

Step 2: Check the status of every line against the earning event

Each line should carry a status that tells you whether it is payable this period: sold, installed, invoiced, collected, funded. Why: a plan that pays on collection will legitimately hold a job you sold three weeks ago, and a financed sale may sit until the lender funds it. That is timing, not an error. What you are checking is that each held line reappears as paid on a later statement. What breaks if you skip it: a line that falls off the statement between months disappears without anyone noticing.

Step 3: Trace every chargeback to its original payment

A chargeback should point to a specific job, a specific prior statement, and a reason. Why: the amount recovered should equal what you were actually paid on that job, commission plus any spiff the plan says charges back, and nothing more. A partial cancellation (the customer kept the system and dropped an add-on) should charge back only the dropped part. What breaks if you skip it: a chargeback for a whole job when only an add-on cancelled, or one recovered twice across two months.

Whether a chargeback after payment is lawful depends on your plan and your state. A plan that clearly defines the commission as an advance, not earned until the customer pays, is treated very differently in many states from one that takes back a wage already earned, and some states restrict wage deductions tightly. This is not legal advice. If a chargeback looks outside the plan's own terms, that is the fork where you stop arguing with payroll and call your state labor department, carrying the written plan, the statements and your own job list.

Step 4: Check that spiffs and commission reached your overtime

Under the FLSA, commissions and promised spiffs are part of your regular rate for overtime, in the workweeks they were earned (29 CFR 778.117 and 778.208 through 778.211). A commission paid monthly therefore has to be spread back over the weeks it covers, and any week with overtime owes an extra half of the added rate for each overtime hour. Where the commission cannot be tied to particular weeks, the regulation's fallback is to allocate it equally across the weeks of the period (29 CFR 778.119 and 778.120).

The exception, in the same breath: the FLSA section 7(i) exemption can remove overtime for some commissioned employees of retail or service establishments, but only when more than half of your pay over a representative period of at least a month is commission and your regular rate exceeds one and a half times the minimum wage. A shop relying on it should be able to tell you so; the Department of Labor's Fact Sheet 20 sets out the test. States can add their own overtime rules on top.

Worked example: an October statement

The statement below is for a hypothetical tech paid base hourly plus 8 percent commission on "ticket less equipment and material cost," paid on the following month's second check once the job is collected or funded, with a 30-day chargeback window on cancellations and a spiff of 4 hours' base pay for each indoor air quality (IAQ) add-on. Every amount is in R, the tech's base hourly rate, so the method works at any pay level.

OCTOBER COMMISSION   TECH 14     (amounts in R)
JOB   TICKET  MATL   FIN FEE  BASE   8%     STATUS
1182  300.0   135.0  18.0     147.0  11.76  FUNDED
1203  120.0    48.0   0.0      72.0   5.76  OPEN AR
SPIFFS
1203  IAQ add-on              4.00          OPEN AR
CHARGEBACKS
1197  IAQ cancel (SEP stmt)  -5.92
PAYABLE THIS PERIOD           5.84

Step 1, the base. Job 1182: 300.0 R ticket minus 135.0 R material is 165.0 R. The statement shows a base of 147.0 R because it also took off an 18.0 R finance dealer fee. The written plan says "ticket less equipment and material cost" and says nothing about fees. On the plan as written, commission is 8 percent of 165.0 R, or 13.20 R, not 11.76 R. The gap is 13.20 R minus 11.76 R, or 1.44 R. Maybe the shop meant to deduct fees and the plan is badly written; maybe it is an error. Either way it is a question about the written words, and it is worth asking before next month. Job 1203: 120.0 R minus 48.0 R is 72.0 R, and 8 percent is 5.76 R. Correct.

Step 2, status. Job 1182 funded, so it is payable. Job 1203 and its spiff are still open receivables, so they are correctly held. Write 1203 on your list to look for in November.

Step 3, the chargeback. Job 1197 was an IAQ add-on sold and paid on the September statement: the 40.0 R ticket less 16.0 R material is a 24.0 R base, and 8 percent of that is 1.92 R, plus the 4.00 R spiff, for 5.92 R. The customer cancelled within 30 days, and this plan charges back spiffs. The recovery equals exactly what was paid, 1.92 R plus 4.00 R. Correct.

Payable. 11.76 R from job 1182 minus the 5.92 R chargeback is 5.84 R, as printed. If the fee question resolves your way, it becomes 13.20 R minus 5.92 R, or 7.28 R.

Step 4, overtime. The 11.76 R commission was earned in October, which had four workweeks for this tech of 50, 44, 40 and 38 hours. Say payroll cannot tie the commission to a specific week and uses the equal-allocation fallback: 11.76 R divided by 4 weeks is 2.94 R per week.

• Week of 50 hours: 2.94 R spread over 50 hours raises the regular rate by 0.0588 R. Half of that, 0.0294 R, times 10 overtime hours is 0.294 R owed.
• Week of 44 hours: 2.94 R over 44 hours is 0.0668 R. Half, 0.0334 R, times 4 overtime hours is 0.134 R owed.
• The 40-hour and 38-hour weeks had no overtime, so nothing is owed for them.

Extra overtime owed: 0.294 R plus 0.134 R, or 0.428 R. If instead the commission is tied to the week job 1182 sold, and that was the 50-hour week, all 11.76 R lands there: 11.76 R over 50 hours is 0.235 R, half is 0.118 R, times 10 hours is 1.18 R. The method changes the answer by a factor of nearly three (1.18 against 0.43), which is why the plan, or payroll, should say which method it uses. Look on the November stub for a line that carries this adjustment. If none appears and no 7(i) exemption applies, ask.

What changes the check

• You are paid commission only, no base. The minimum-wage floor still runs on your hours worked each week under the FLSA, and the commission statement is now the whole of your pay, so the hour log matters more. See related: How Flat-Rate Pay Works From the Tech's Side for the workweek test.
• Commission is on gross profit after labor. Your own labor hours on the job now reduce your commission. Ask what labor rate is charged against the job; a loaded rate that includes overhead shrinks the base further than your actual wage would.
• The sale was financed with a promotional rate. The shop may pay the lender a large fee to offer that rate. Whether that fee comes off your base is exactly the definition Step 1 checks.

Keeping a parallel record

Keep your own one-line-per-sale list: job number, date sold, ticket, add-ons, financing yes or no, and the date it should become payable under your plan. Tick each line off as it appears paid. A month of that takes ten minutes and gives you everything the worked example used. When you do raise a discrepancy, bring the plan's wording, the statement line and your arithmetic, nothing more; see related: Raising a Paycheck Error.

References

• 29 CFR 778.117 through 778.120 (commissions in the regular rate) and 778.208 through 778.211 (bonuses)
• FLSA section 7(i), 29 U.S.C. 207(i); U.S. Department of Labor Fact Sheet 20 (employees paid commissions by retail establishments)
• California Labor Code 2751 (written commission contracts); your own state labor department's wage deduction rules
• See related: Reading Your Pay Stub as a Technician, How Flat-Rate Pay Works From the Tech's Side, Raising a Paycheck Error, Overtime Rights a Tech Should Know