Designing Sales KPIs and Commission So They Produce Real Sales and Stay Within Labour Law

Many business owners set commission as a percentage of sales from day one because it is simple and salespeople like it. Then one day they find that the salesperson closes plenty of sales, but customers pay late, some return goods, and some discounts are so deep that no profit is left. By then the commission has already been paid, and when they try to change the formula, the best salesperson is unhappy or threatens to resign.

On the other side, owners often do not stop to think that commission is a form of pay for work, and so falls under labour law as well. Changing the formula, clawing money back, or dismissing someone for missing target all sit within a legal framework that has to be read alongside the KPI design. This guide starts with a design that works for the business, then points out where the law and the contract decide whether the plan will hold.

The core answer

Good KPIs and commission tie to what the company actually gets: cash collected, gross profit after discount, and new or repeat customers, not just invoiced sales. Put in writing when the right to commission arises, in which cases it may be cancelled or clawed back, and who owns each customer.

The rule (Thai law). Section 5 of the Labour Protection Act B.E. 2541 defines wages as money the employer and employee agree to pay as consideration for work under the employment contract, whether calculated by normal working time or by the results the employee achieves. Commission paid regularly by results may therefore be treated as wages, which affects the calculation of severance and other rights. A deduction from wages must fit an exception under section 76, and a dismissal that is not within section 119 requires severance pay. Supreme Court decisions on commission and wages are not uniform in every case.

Our practical view. Do not design the formula on the assumption that commission is not wages, to save cost. Design it on the basis that it may be wages: write the formula clearly, state clearly when the right arises, and build a clawback mechanism that does not need deductions from salary. This is safer and reduces disputes on both sides.

For a former employee who takes the customer list, see a former employee takes the customer list. This guide deals with setting the rules while the person is still working for you.

1. Start by asking what behaviour you want from the sales team

Before writing a formula, answer three questions.

• Does the company want total sales, profit, new customers, or retention of existing ones? Each goal needs a different formula.
• What can the salesperson control? Price, discounts, payment terms. If a salesperson can discount freely without bearing the effect on profit, a formula based on sales will always push towards discounting.
• How long does each type of sale take from first contact to receipt of payment? A long-cycle sale should not be measured monthly alone.

Metrics that are easy to measure but unrelated to profit, such as the number of calls or quotations, can serve as activity indicators for coaching, but should not be the basis of the main commission.

2. The main metrics to choose

Choose only two or three main metrics. With more, salespeople will not know what to do and the company will find the calculation hard to explain.

3. When does the right to commission arise?

This is where most disputes occur. Write it as clear clauses, for example:

Sample wording (adapt to the business)
1. The right to commission arises when the company has received full payment
   from the customer for that sale.
2. Where the customer pays in instalments, the company pays commission in
   proportion to each instalment received.
3. Where the customer returns goods or cancels the order within the period
   set in this policy, the company will deduct the commission on that
   order from the next unpaid commission.
4. Commission whose right has not arisen under clause 1 on the date the
   employment contract ends is dealt with under clause 8 of this policy.

Points to think about:

• The right arises when the customer pays. This helps the company's cash flow and ties in with the problem of late-paying customers. See profitable but short of cash. But salespeople will see it as bearing a risk they cannot control, so set a sensible time limit and a way to handle customers who stay unpaid for a long time for the company's own reasons.
• A policy introduced later, applied to sales already closed, is very likely to be challenged. Apply it only to new sales made after the announcement date.
• Vague wording, such as "commission is paid at the company's discretion". If the company has paid it regularly all along, it may be seen as something agreed by conduct, and the wording should not be used as an excuse afterwards.

4. How to claw back commission without breaking the law

Having a salesperson return commission when a customer returns goods or does not pay makes business sense, but it collides with section 76 of the Labour Protection Act, which prohibits an employer from deducting wages unless an exception in the law applies, and some exceptions carry conditions on consent and a cap on each deduction. For details see deducting an employee's salary.

Lower-risk approaches:

1. Design commission so the right has not yet arisen until the period in which the customer may return goods has passed, instead of paying first and asking for it back.
2. If you must claw back, set it off against the next unpaid commission, under rules notified before the sale occurred.
3. Do not deduct from regular salary already paid, or ask the salesperson to transfer money back, without first checking with a consultant.
4. Where the employee is dismissed or resigns before the clawback is complete, say in the policy what happens. Do not use money the employee is entitled to as outstanding wages to set off arbitrarily.

5. How to change the commission formula

A common situation is that the old formula disadvantages the company and it wants a new one. Separate two cases.

• The new formula is better than or the same as before for the salesperson. Generally this can be done with advance notice.
• The new formula leaves the employee with less. This is a change to the terms of employment that is adverse to the employee, and written consent should be sought from each person individually. Imposing it unilaterally may be challenged as an unlawful change of employment conditions, and if the employee resigns because of it, that may be argued to be a dismissal.

In practice, announce the new formula with reasonable advance notice, apply it to sales made after the effective date, and explain the business reason. If the formula is already in the work rules or the employment contract, also see the work rules for how to amend it.

6. Commission, wages, severance and other rights

When commission is paid regularly by results, there is a risk that it will be counted as wages under section 5, which may affect:

• The base for calculating severance on dismissal. See severance pay and termination.
• Overtime, pay for work on holidays, and other rights calculated from the wage rate.
• Contributions to funds that are tied to wages.

On whether each kind of payment counts as wages, read more at what counts as wages. The Supreme Court has ruled in several ways depending on the nature of the payment and how it is made, so owners should not conclude on their own that an incentive tied to sales falls outside the base. For anything of high value, have a lawyer check before the formula is set.

7. If a salesperson misses target, can we dismiss?

Low performance is a real business problem, but labour law does not treat it, in itself, as a reason to avoid severance. Section 119 of the Labour Protection Act lists the cases where severance need not be paid, for example dishonesty in the performance of duty, an intentional criminal offence against the employer, intentionally causing the employer damage, breach of lawful and fair work rules or orders after a written warning, and abandoning duty for three consecutive days without good reason. Check the current text of the statute before relying on it in a real case.

The consequences are:

• If you dismiss for performance, be ready to pay severance as of right, unless a section 119 ground really exists.
• An unfair dismissal also leaves room for the employee to ask the Labour Court to order reinstatement, or to pay compensation instead, under section 49 of the Labour Court Establishment and Procedure Act B.E. 2522. See what to do if you are dismissed.
• Steps to take before that point: set clear and reasonable targets, assess in writing, allow a set time to improve, and use a warning letter where there is a breach of rules or orders. See warning letters.

8. Targets, territory and customer ownership

Most problems within a sales team are not about the formula but about who gets which customer. Set this out in the policy.

• How customers or sales leads are registered to prevent fighting over them, and how long a salesperson's rights in a lead last.
• Who gets commission when an existing customer buys again after the first salesperson resigns, or when territories change.
• Customers who come from advertising, the website or a director's referral should not automatically count in full as the salesperson's results.
• Keeping customer data in the CRM or company systems, not personal phones, LINE or email, and keeping company LINE accounts or pages separate. See an employee or agency does not return the company's accounts.

Customer data about individuals, such as name, telephone number and purchase history, is personal data. The company, as data controller, needs a lawful basis and security measures. Letting salespeople keep customer data on personal devices increases both the risk of leaks and the risk that data is taken when they leave. See the PDPA checklist and employee personal data.

9. Documents to have

1. A commission and KPI policy as a single document, stating the formula, metrics, when the right arises, the clawback mechanism, how commission is split when several people close a sale, and the rules on change of territory or end of employment.
2. An acknowledgement of the policy, signed by the salesperson, who keeps a copy.
3. A confidentiality agreement that clearly defines customer data and prices. For cautions on post-employment restrictions, see trade secrets and customer lists.
4. Performance review records showing the date, the target and the actual result.
5. A monthly commission statement from which the salesperson can check which transactions it was calculated from.

10. Checklist before you announce

• The main metrics tie to cash collected or profit, not invoiced sales alone.
• When the right to commission arises is clear, and instalment payment is explained.
• The clawback mechanism does not require deducting salary already paid.
• The new policy applies to sales after the announcement date, with proof the salespeople were told.
• If the new formula pays less, written consent has been sought from each person.
• You have assessed that commission may count as wages, and calculated the effect on severance and overtime.
• Rules on leads and customer ownership are set, including when a salesperson resigns.
• Customer data is in company systems and there is a confidentiality agreement.
• Missing target is not used as a ground for dismissal without severance, without checking section 119.

Further reading

• What counts as wages and employee allowances — to check whether commission falls into the wage base
• Deducting an employee's salary — before designing a clawback
• Employee warning letters — for breaches of rules or orders
• Severance pay and termination — when you must calculate severance
• What to do if you are dismissed — the employee's side and the employer's risk
• A former employee takes the customer list — trade secrets

Good commission is tied to money the company actually receives. Set out clearly in writing, before sales begin, when the right arises and how clawbacks work, and treat commission from the outset as possibly being wages under labour law.

We draft pay policies, confidentiality agreements and HR documents for businesses with sales teams, and check commission formulas against labour law before they are announced. For an initial consultation, call +66 92 254 2045 or send us the details. See also HR documents and monthly legal retainer.

This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.