The 5 Commission Structures UK Sales Teams Actually Use

Most articles on commission structure for sales list nine or ten theoretical models — straight commission, residual, multiplier, gross margin, territory volume — as if a UK sales leader with 18 reps and a Xero subscription is going to pick from a menu. In practice, UK sales orgs run five. And the structure you choose matters far less than two things nobody writes about: whether you've defined the exact event that triggers a payout, and whether your payroll can actually execute it under PAYE.

TL;DR

UK sales teams overwhelmingly use five commission structures: flat rate, tiered/threshold, margin-based, split/override, and draw plus commission. Each one maps to a specific role — flat rate for SMB SaaS AEs, tiered for recruitment consultants, margin-based for contract recruitment and resellers, splits for multi-threaded and channel deals, draw for new hires on ramp. The structure itself is rarely what breaks; what breaks is the payout trigger, especially on contracts with opt-outs, ramps or cancellation clauses. Whichever structure you pick, commission is ordinary earnings for PAYE and National Insurance, and HMRC's 2026 to 2027 employer rates mean every £1,000 of commission carries roughly £150 of employer NIC on top (HMRC rates and thresholds for employers 2026 to 2027).

What are the five commission structures UK sales teams actually use?

Structure	Where you see it in the UK	Paid on	Where it breaks	Payroll wrinkle
Flat rate	SMB SaaS AEs, inside sales, transactional field sales	Fixed % of every deal	No pull toward stretch performance; over-rewards inbound luck	Simplest to run; still fully liable to PAYE and NIC
Tiered / threshold	Recruitment consultants, mid-market AEs	% rises once a threshold or quota is cleared	Cliff-edge gaming at period end; retro-rate recalculation errors	Retro tiers create in-period corrections that hit the wrong tax month
Margin-based	Contract recruitment, resellers, services	Gross margin, not invoice value	Margin data lands late or gets restated	Payout depends on finance close, not CRM close
Splits & overrides	Multi-threaded enterprise deals, desk splits, channel/partner managers	Shared % between two or more earners	Attribution arguments; over-100% allocation	Overrides to managers and payments to self-employed partners are taxed differently
Draw + commission	New hires, ramping reps, commission-heavy recruitment desks	Advance against future commission	Recoverable draw debt builds silently	Must still clear National Minimum Wage each pay reference period

Flat rate: the SMB SaaS AE

A flat-rate structure pays the same percentage on every pound of closed business — say 8% of annual contract value for an AE running £8k–£25k deals on a 30-day cycle. It works precisely because the deals are small, similar, and land constantly. When a rep closes 40 deals a year, a tiered structure adds administrative weight without changing behaviour much, because no single deal moves the needle enough to be worth gaming.

The honest criticism of flat rate isn't that it's unsophisticated. It's that it pays identically for a deal the rep sourced and a deal marketing dropped in their lap. If your inbound-to-outbound mix is lopsided, flat rate quietly funds luck.

Tiered and threshold: the recruitment consultant

Tiered structures dominate UK recruitment because the economics demand it. A consultant has to cover their own cost of sale — salary, desk, systems — before the business makes money, so the first slice of billings pays nothing or very little, and rates step up beyond that. A permanent consultant might earn 0% up to £8,000 of monthly billings, 10% from £8,001 to £15,000, and 20% above that. The step change is the point: it makes the difference between a quiet month and a good one feel enormous.

Two mechanics decide whether a tiered scheme is fair or infuriating. First, is the tier applied to the incremental band only, or retrospectively to everything once the threshold is cleared? Retro tiers are far more motivating and far more error-prone, because clearing a threshold in month three means recalculating months one and two. Second, does the period reset monthly, quarterly or annually? Monthly resets punish long sales cycles; annual accumulation with monthly advances is usually the better answer for mid-market. We've gone deeper on band design in threshold tiers for recruitment commission and on the upside end in commission accelerators.

Margin-based: contract recruitment and resellers

Margin-based structures pay on gross profit rather than invoice value. A contract recruiter placing a contractor at £450 a day with a £70 daily margin earns on the £70, not the £450 — which is the only sane basis when the invoice figure is mostly pass-through cost. The same logic applies to resellers and any business where discounting is a live lever.

The operational problem with margin-based commission is timing. Revenue is known on the day the deal closes; margin often isn't known until finance has landed supplier costs, credit notes and rebates. That gap is where most margin disputes originate — not in the percentage, but in the fact that the rep's CRM number and the ledger number were never the same number.

The structure rarely causes the dispute. The gap between the number the rep saw and the number finance paid does.

Splits and overrides: enterprise deals and channel partners

Once deals are genuinely multi-threaded, a single owner is a fiction. Splits allocate a deal across an AE and an SDR, two desks, or a direct rep and a partner manager. Overrides pay a manager a small percentage of team production on top of their own base.

In practice, contract complexity spikes past roughly £100k. Below that, a deal is a clean closed-won number. Above it, custom clauses, opt-outs, security reviews and legal redlines appear — and multiple people have a legitimate claim to the outcome. Comp logic that works on a £10k, 14-day SMB deal does not survive a £350k multi-threaded one, and split rules written for the former are exactly where the money leaks.

One structural trap specific to channel: if your "partner manager" commission is actually being paid to a self-employed agent or a partner's own limited company, you are no longer in payroll territory at all, and getting the status call wrong is expensive. Employment status depends on the facts of the working relationship, not the label in the contract, and HMRC guidance is clear that individuals and employers can face unpaid tax and penalties where status is wrong (GOV.UK employment status).

Draw plus commission: the ramping hire

A draw pays an advance against future commission so a new hire isn't earning nothing while their pipeline builds. Recoverable draws are repaid from later commission; non-recoverable draws are effectively a guarantee. Recruitment desks and long-cycle enterprise teams use them heavily, and they're the right tool for the first two quarters of a hire's life — see draw against commission for the mechanics.

A draw does not remove the National Minimum Wage floor. NMW is assessed per pay reference period, and from 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour according to HMRC's employer rates for 2026 to 2027. A commission-heavy or draw-based scheme has to clear that floor in its own right in each period — you cannot rely on next quarter's commission to retrospectively fix this quarter's shortfall.

How do you choose a commission structure for sales that survives contact with payroll?

Run the payout-event test before you argue about percentages. For each structure you're considering, write down the single event that makes commission payable — signature, invoice, cash receipt, end of the cancellation window, end of the rebate period — and then check whether that event is recorded somewhere reliable and dated. If it isn't, no percentage will save you.

A worked example: what a tiered payout actually costs

Take a mid-market AE on £48,000 base and £24,000 variable at 100% (a 67/33 split — see OTE in UK sales for why UK ratios rarely look like US ones). Quota is £480,000 of new ACV. The scheme pays 4% up to quota and 8% above it.

The rep lands £560,000: £19,200 at 4% on the first £480,000, plus £6,400 at 8% on the £80,000 of overachievement. Total commission £25,600. Because the rep's base already exceeds the secondary threshold of £5,000 a year, every pound of that commission also attracts employer National Insurance at 15% under HMRC's 2026 to 2027 rates — £3,840 of employer NIC on top, before you count pension contributions. Smaller employers may be able to offset part of their bill using the Employment Allowance, which is £10,500 for 2026 to 2027.

Now assume £120,000 of that ACV sat in a contract with a 90-day opt-out that the customer exercises. Paid on signing-day gross, the rep received about £5,600 they hadn't earned, the company paid roughly £840 of employer NIC on it, and the correction lands in a later tax month — which is precisely the sequence that turns an arithmetic problem into a trust problem. We've written about the accounting side of that unwind in the employer NIC cost of commission.

The audit that prevents most of this

A sales manager's job isn't only helping reps close — it's shielding them from internal operational mistakes. Sanity-check the calculation against the real contract terms before payroll runs, because once a wrong number is paid, the correction is what does the cultural damage.

How is commission taxed under each structure?

The structure doesn't change the tax treatment. Commission paid to an employee is ordinary earnings: it goes through payroll and is subject to income tax under PAYE and Class 1 National Insurance in the period it's paid, as set out in HMRC's employer further guide to PAYE and NICs (CWG2, 2026 to 2027). For 2026 to 2027, employees pay 8% on earnings between the primary threshold of £12,570 and the upper earnings limit of £50,270, then 2% above it, while employers pay 15% above the £5,000 secondary threshold.

What the structure does change is the shape of the reader's tax year. A quarterly tiered scheme concentrates commission into four months, which can push a rep into higher-rate territory in those months and produce a payslip that looks wrong even when it's right. That's a communication job, not a plan-design job.

Holiday pay is where structure and statute genuinely interact. Under the Working Time Regulations, four weeks of statutory leave must be paid at a worker's normal rate of pay, and government guidance confirms that commission payments intrinsically linked to contractually required tasks must be included in that four weeks; the remaining 1.6 weeks can be paid at basic rate (DBT holiday pay reforms guidance). A commission-heavy structure therefore carries a bigger holiday pay liability than a base-heavy one at the same OTE — a cost most plan modelling ignores. There's more detail in holiday pay on commission.

Absence is the other place structures diverge. Acas guidance states that employers should pay employees on maternity leave commission they earned before the leave started, even if it's paid after the leave begins, while commission is not usually included in company sick pay because the employee isn't earning it while away (Acas: commission when employees are off work).

Frequently Asked Questions

Which commission structure is best for a small UK sales team?

For teams under about ten reps with short sales cycles, a flat-rate or single-threshold structure is usually the right call, because the administrative cost of tiers, splits and retro recalculations outweighs the behavioural benefit at that scale. Add complexity only when deal sizes diverge enough that one structure genuinely misprices two kinds of sale.

Is commission taxed differently from salary in the UK?

No. Commission paid to an employee is treated as ordinary earnings and is subject to income tax under PAYE and Class 1 National Insurance in the pay period it's paid, per HMRC's CWG2 employer guide. It can feel different because a large single payment interacts with the monthly PAYE calculation, but the rates and bands are the same as for salary.

Should commission be paid on revenue or gross margin?

Pay on margin where discounting is a live lever or where a large share of invoice value is pass-through cost — contract recruitment, resellers, services with variable delivery cost. Pay on revenue where pricing is standardised and the rep has little discount authority, because margin-based schemes only work if margin data is reliable and available before payroll cut-off.

Can you change a commission structure mid-year?

Commission terms usually form part of contractual or well-established arrangements, so changes generally need to be agreed rather than imposed, and deals already in flight need transitional rules. As of 3 September 2026 there's no single statutory notice period for changing a commission scheme — it turns on the contract and on custom and practice, so take advice and document the consultation before you announce anything.

Do you need software to run a tiered or split commission structure?

Not at the smallest scale, but tiered, split and margin-based structures are where spreadsheets fail hardest, because they require retro recalculation and multi-party allocation across periods. Reps don't lose faith because a number is occasionally wrong — they lose it when they can't see how it was built and a correction lands with no warning, which is why real-time visibility and an audit trail prevent more disputes than a cleverer structure ever will.