Draw against commission salary systems can be a great way to keep a sales force motivated and a great way for the employees to maintain their living standards. The business of sales can be unpredictable and the draw against commission system can be a tool that limits this uncertainty.

A common practice is for the employee to take a set draw each pay period. Then, at the end of the pay period the draw is deducted from their sales commissions and returned to the company. If an employee draws $500.00 per week, then their commissions must be at least $2,000.00 that month to cover their draw. If their commissions are less than $2,000.00 the remaining draw amount will start to accrue as a debt to their company. If their commissions exceed $2,000.00 that month, then they would receive the commission amount over the $2,000.00 draw.

Employers need to be able to recoup the draws they give in order to maintain and grow their profit margins. At the same time the employees need to meet or exceed their projected sales to avoid accumulating significant debt with the employer. The terms of the agreement should be reviewed carefully with mutual options to renegotiate at set times during the professional relationship. Of course, the particulars are governed by federal and state laws.

The United States Department of Labor is great place to start. Some states require a company to guarantee an employee's right to at least minimum wage regardless of commission, so researching the labor department for the appropriate state can provide guidance referring to state laws and practices. Employers may find subscribing to the Society for Human Resource Management helpful as well.

The tax treatment of income earned by draws against commission may vary from state to state. Some states may have adopted the federal government's practice of taxing the employee on their draw against commission as well as their actual commission which would all be reflected on the employee’s W-2. In the case that Federal income tax is not withheld by the employer, then they must to file a 1099-MISC .

Before instituting a policy allowing employees to draw against commission, consult with a lawyer experienced in the labor laws of your state.