How commission-only pay works in New Zealand

Commission can be a useful way to reward sales performance. For growing businesses, it can also look like a simple way to link labour costs to results. But in New Zealand, commission-only pay is not as straightforward as paying someone a percentage of what they sell and leaving it there. 

If you’re an employer or HR leader, the key point is this: commission-based pay can be lawful, but you still need to meet your wider pay obligations. In many cases, that means making sure employees receive at least the minimum wage for every hour they work, even if their commission falls short. Getting this wrong can lead to wage arrears, disputes and penalties.

Here’s a practical guide to how commission-only pay works in New Zealand, when it may be used and what your employment agreements should clearly cover.

What is commission-only pay?

Commission-only pay means a worker’s earnings come entirely from commission rather than a fixed salary or hourly wage. Usually, commission is tied to outcomes such as:

• Sales made
• Revenue generated
• Contracts signed
• Payments collected

Some businesses use pure commission arrangements. Others use a base rate plus commission. The second model is often easier to manage because it gives employees a guaranteed level of income while still rewarding performance.

In New Zealand, whether a commission-only arrangement works legally depends on one big question: is the person an employee, or are they genuinely an independent contractor?

That distinction matters because employees have minimum employment rights under New Zealand law. Contractors do not receive those same protections in the same way, although misclassifying someone as a contractor creates its own serious risks.

Is commission-only pay legal in New Zealand?

Yes, commission-only pay can be legal in New Zealand, but not as a way to avoid minimum employment standards.

If the worker is an employee, the arrangement must still comply with the Employment Relations Act 2000, the Minimum Wage Act 1983 and the Wages Protection Act 1983.

That means a commission structure can sit inside a lawful pay model but it can’t undercut statutory entitlements.

How minimum wage obligations apply

This is the part employers need to get right from the start. Under the Minimum Wage Act 1983, eligible employees must be paid at least the relevant minimum wage for every hour worked. So if you have an employee on commission, you need a reliable way to check:

1. How many hours they worked
2. How much they earned in the pay period
3. Whether that pay meets the minimum hourly requirement

If commission exceeds minimum wage levels, that’s usually fine. If it doesn’t, the employer generally needs to top up the difference.

A simple example

An employee works 30 hours in a week. Their commission for that week comes to $500. If the applicable minimum wage for those hours would require more than $500, the employer can’t simply pay the commission amount and stop there. They would usually need to make up the shortfall.

When commission structures tend to work better

Commission can be an effective incentive when it sits within a well-designed pay framework. In practice, employers may reduce risk by using one of the following models:

Pay model	How it works	Main legal watchpoint
Base pay plus commission	Employee receives a fixed wage or salary, plus extra commission	Base pay still needs to meet minimum legal standards
Recoverable draw plus commission	Employee receives an advance against future commission	Deductions and repayment terms must be lawful and clearly agreed
Contractor commission model	Genuine contractor is paid on results only	Contractor status must be genuine, not used to avoid employee rights

For many employers, base pay plus commission is the safest and simpler model. It gives predictability for both sides and reduces the chance of falling below minimum pay thresholds.

What employment agreements should cover

If you use commission for employees, your employment agreement needs to do more than mention a percentage.

Under the Employment Relations Act 2000, written employment agreements must contain certain required terms. For commission arrangements, it’s also wise to spell out the mechanics in plain language.

A good agreement should cover:

• How commission is calculated
• When commission is earned
• When commission is paid
• Whether it depends on invoicing, payment receipt or another trigger
• What happens if a sale is cancelled or refunded
• How disputes about commission will be handled
• Hours of work and how time will be recorded
• How minimum wage top-ups will work if needed

You should also be careful with deductions. Employers can’t make deductions from wages unless the law allows it or the employee has given written consent, as set out under the Wages Protection Act 1983. That matters if you want to claw back overpayments, reverse commission on cancelled sales or recover draws.

Don’t leave grey areas

Commission disputes often start with vague wording. For example, an agreement might say commission is paid on “completed sales” without defining what that means. Is the sale complete when the customer signs, when the invoice is issued or when payment clears? A few extra lines in the agreement can prevent a much larger issue later.

The employee versus contractor question

Some businesses assume commission-only pay is easier if they label the worker a contractor. That can be risky.

In New Zealand, status depends on the real nature of the relationship, not just the label in the contract. Courts and regulators look at factors such as control, integration into the business, who bears financial risk and whether the person is really operating an independent business.

If someone is treated like an employee in practice, calling them a contractor will not remove their legal rights. If the arrangement is later found to be employment, you could face claims for unpaid wages, holiday pay and other entitlements.

Key risks if employers get it wrong

Commission arrangements can support performance, but they need careful design and active oversight. The main risks include:

• Underpaying minimum wage
• Poor record-keeping around hours and earnings
• Unlawful deductions or clawbacks
• Unclear contract terms
• Misclassifying employees as contractors

If a problem arises, employees may raise a personal grievance or pursue a wages claim. Labour Inspectors may also investigate breaches of minimum standards. 

Remember, if your commission plan only works when sales stay strong every single week, it may not be robust enough for an employment setting. Payment structures should still hold up during quiet periods, delayed deals and seasonal dips.

Practical tips for employers and HR leaders

If you’re reviewing a commission model, focus on the basics first.

Check the structure

Ask whether the worker is truly an employee or contractor. Then review whether the pay model fits that status.

Check the numbers

Run regular payroll reviews to compare actual earnings against hours worked. Don’t wait for a complaint before testing whether minimum wage obligations are being met.

Check the paperwork

Make sure your employment agreements explain the commission formula, timing, deductions and treatment of cancelled sales in plain language.

Check your records

Keep accurate wage, time and holiday records. If your business can’t show how pay was calculated, it becomes much harder to defend the arrangement.

The bottom line

Commission structures can absolutely have a place in New Zealand workplaces. They can reward results, support sales growth and give employees a clear link between performance and pay. But for employees, commission-only pay doesn’t override minimum legal entitlements.

The safest approach is to treat commission as part of a broader pay framework, not a shortcut around wage obligations. If you use commission in your business, review your agreements, record-keeping and payroll checks now. A well-built structure can motivate your team and reduce risk at the same time.

Take the pain out of compliance

Managing payroll can be challenging for business owners. Whether it’s tracking hours, calculating leave or completing payday filing, manual compliance becomes risky and time-consuming.

That’s where Employment Hero can help, with automated payroll software to guide you through all those essential tasks. You can easily calculate pay, taxes, KiwiSaver contributions, public holiday pay rates and so much more.  

Plus, with Employment Hero, you can manage HR too. Get notifications when employee certifications are about to expire, request digital acknowledgment of essential workplace policies and auto-schedule 1:1s and performance reviews to keep your team on track to meet their goals. 

For more information on how Employment Hero can support your business, get in touch with our team today.

The information in this article is current as at 5 May 2026, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.