FACT SHEET - 2014 COMMISSION-ONLY CONDITIONS THAT MUST BE MET Commission-only is meant only for experienced salespersons with a proven track record. Every one of the following conditions MUST be met before a salesperson is allowed to be remunerated by commission-only. Putting a salesperson on commission-only when they have not met all the conditions can give rise to a very expensive claim by the employee against the employer a $50K-60K claim in not uncommon. The Real Estate Industry Award conditions to be met to go onto commission only are: 1. There is mutual agreement in writing between the employer and the employee for the employee to be remunerated by commission-only; and the written agreement sets out how commission will be calculated. A verbal agreement will not cut it. REEF will assist you with an employment agreement. 2. The employee is either a registered agent or a registered salesperson. 3. The employee has been actively selling real estate for an aggregate of 12 months out of the last 5 years. 4. The employee is at least 21 years of age. 5. The employee is cannot be a casual, a junior, a trainee or a property sales associate. 6. The employee has passed the MINIMUM INCOME THRESHOLD TEST (MITT)with the present or any past employer (how to pass this test follows below). 7. The MITT does not apply to an employee who has operated their own real estate business within the last 5 years.
How to calculate the MINIMUM INCOME THRESHOLD TEST (MITT) Currently there are 2 if not 3 different interpretations of the MITT. Not a very satisfactory position to be in. So, for the interpretation given here, it is definitely subject to the disclaimer. The real estate industry REEF s and unions generally hold one interpretation while the Fair Work Ombudsman s office hold a different one. We think the FWO is incorrect. STEPS ANSWER It is up to the employee to establish the following but there would be an obligation on the employer that the employee has established it based on creditable data. In practical terms the parties would work together to establish that the MITT has been passed or not. It could be argued that the MITT cannot be established verbally there should be some documentation like commission statements or group certificates but group certificates may contain wages which would corrupt the result and also would not contain the employer s net commission which is needed for Step 2. STEP 1 12 month period When figuring out the 12 consecutive months the period may involve more than one employer but that is OK. Also the 12 consecutive moths do not have to be a calendar or financial year it can be any 12 consecutive months. If the employee has been out of the industry for more than 5 years, he/she will have to wait at least 12 months before commission-only can be considered. Select any 12 consecutive months out of the last 5 years From: To: STEP 2 employer s net commission The award talks about the employee s real estate sales during the 12 month period. The industrial parties interpret this as the employer s net commission whereas the FWO interprets this phrase as the sale price for the property. This fact sheet will work on the employer s net commission. So for each employer (if more than one) the salesperson worked for during the 12 month period the employer s net commission would be the employer s gross commission less things like GST, franchise fees and conjunction fees. Ideally the employer s net commission for the 12 month period would be established by commission statements. How much employer net commission was the salesperson responsible for bringing in during those 12 months? $ Page 2 of 6
STEP 3 lowest rate of commission A salesperson will either have a single rate of commission or they will be on a sliding scale. A single rate of commission is obviously the lowest rate of commission while the lowest rate in a sliding scale will also be obvious. What will be the salesperson s lowest rate of commission under the proposed commission-only agreement? % STEP 4 lowest rate of commission excluding inclusions The LOWEST RATE OF COMMISSION term is not defined by the award but it may be reasonable to assume a court would expect any inclusions in a salesperson s commission would need to be excluded to get the lowest rate. If super is included in the commission rate you should reduce the lowest rate by dividing it by 1.0925 and then that would become the lowest rate for the MITT calculation. E.g. if 50% is taken as the lowest rate then 50 1.0925 = 45.76 a reduction of the 50% of 4.24%. Annual leave and sick/carers leave is about 11.5% so to reduce 50% by 11.5% is 50 1.115 = 44.84 a reduction of 5.16%. Total reduction of super, annual & sick leave is 4.24% + 5.16% = 9.4%. So in this example if the salesperson is to receive 50% and super, annual and sick leave in included in the commission the 50% would be reduced by 9.4% which = 40.6% and this would then become the lowest rate. Other NES payments like redundancy pay and pay in lieu of notice can be included in a commission-only salesperson s commission but that is not recommended, otherwise you may bring the lowest rate of commission too low to pass the MITT. What will be the salesperson s lowest rate of commission under the proposed commission-only agreement when any deductions under this step have been deducted from the percentage under Step 3? If there are no deductions simply repeat the percentage under Step 3. % STEP 5 Multiply the answer in STEP 2 by the answer in STEP 4 $ Page 3 of 6
HAS THE TEST BEEN PASSED? The following paragraphs (a) (i) & (ii) & (b) are reproduced from the Real Estate Industry Award, except for the boxed comments containing the wage amounts (a) The minimum income threshold has been achieved if (and only if) the employee would have been entitled to be paid the following amount: (i) if the employee was not required to incur the costs of supplying and running a motor vehicle and/or the costs of supplying and using a mobile telephone, an amount at least equal to the employee s wage specified in clause 14 Minimum weekly wages, calculated as an annual amount, based on the minimum weekly wage for the employee s classification. For 2013/2014 financial year this amount is $33,947.68 for SA & NT for a Property Sales Representative so if the employee WAS NOT required to incur the costs of supplying and running a motor vehicle and/or the costs of supplying and using a mobile telephone and the amount in Step 5 is equal to or greater than $33,947.68 the employee has passed the test; or (ii) if the employee was required to incur the costs of supplying and running a motor vehicle and/or the costs of supplying and using a mobile telephone, an amount at least equal to 110% of the employee s wage specified in clause Minimum weekly wages, calculated as an annual amount, based on the minimum weekly wage for the employee s classification (b) For 2013/2014 financial year this amount is $37,342.44 for SA & NT for a Property Sales Representative so if the employee WAS required to incur the costs of supplying and running a motor vehicle and/or the costs of supplying and using a mobile telephone and the amount in Step 5 is equal to or greater than $37,342.44 the employee has passed the test. The employer is entitled to rely on any data supplied by the employee from any past employer for the purpose of determining if the minimum income threshold has been achieved, provided that the employee provides the employer with a statutory declaration about the accuracy of such data. STEP 6 if passed test do a statutory declaration If the salesperson has needed to provide any information under STEP 2 the employer must for their own protection require the salesperson to do a statutory declaration worded something like (this is an award requirement): I declare that the information is accurate that I provided to Apex Real Estate Pty Ltd for the purpose of ascertaining how much employer gross and net commission I was responsible for bringing in for the 12 month period of <month> <year> to <month> <year>. Page 4 of 6
FAQ S 1. Is there anything an employer can do if the salesperson fails the MITT? An employer can consider raising the salesperson s lowest rate of commission; or If the proposed lowest rate of commission has annual leave and sick/carers leave included in the commission the employer can consider not including leave in commission and paying the leave at the award wage rate when it arises and debit the wages. 2. How is the amount of the gross and net office commission [less GST] determined in Step 2 that the salesperson settled for the 12 consecutive month period as a result of the salesperson s own efforts, particularly if he/she was working for someone else? This information will come from the salesperson if any of the settlements would have occurred with a different employer. You should satisfy yourself through documentary evidence like commission statements just to accept the word of the salesperson may not be enough. For your own protection, you must have the salesperson complete a statutory declaration as outlined above. This statutory declaration is provided for under the Real Estate Industry Award. 3. Is there a minimum payment for a sales transaction? Yes. Under clause 16.5 of the award once on commission-only the salesperson must receive a clear minimum of 35% for each sales transaction even if their commission statement is an debit see clause 16.5(c) of the award for how commission splits are handled if the salesperson only lists or only sells. A commission-only salesperson is not paid a wage, car allowance, mobile phone reimbursement or overtime. The employer does not have to guarantee the minimum wage but if the salesperson does not sell the employer will still have to pay for leave. 4. Do I have to register commission agreements? Yes but only for South Australia. Northern Territory does not have to register. MUST be registered with REEF & RESA in accordance with the award. You can request a registration form from REEF. 5. Can I include in a commission-only salesperson s commission payment advanced payments for annual leave and sick leave? Yes but you can only include advanced payments for annual leave and sick leave in that portion of commission which is in excess of the required minimum payment of 35% for each sales transaction. Other NES payments like redundancy pay and pay in lieu of notice can be included but that is not recommended, otherwise you may bring the lowest rate of commission under Step 4 too low to pass the MITT. 6. Is it important to have a written employment agreement? Yes it is extremely important. The award requires that commission agreements MUST be in writing. If you require REEF SA/NT assistance in doing an employment agreement you complete a questionnaire, fax or email it to REEF SA/NT and your draft agreement will emailed to you. Questionnaires (also for property managers and clerks) can be located on REEF SA/NT website or ring/email REEF SA/NT for one. Page 5 of 6
Commission arrangements for a salesperson can become a trap for the unwary so if you are unsure you are well advised to seek REEF SA/NT guidance. Disclaimer This information has been provided by the Real Estate Employers Federation of South Australia and the Northern Territory (REEF SA/NT) by providing education, assistance and guidance (but not legal advice). This information is not provided for any other purpose. While REEF SA/NT makes every effort to ensure the accuracy of the information provided, the accuracy may be affected by changes to Commonwealth law and policy, or by judicial consideration or interpretation. REEF SA/NT does not give any guarantee, undertaking or warranty whatsoever in relation to the information, including in relation to the accuracy, completeness, currency or the interpretation of any award, the Fair Work Act or any decision or determination of Fair Work Australia of the information. By agreeing to use this information, the user agrees to indemnify and hold harmless REEF SA/NT from and against any loss or liability suffered by a user or a third party, arising out of the provision of the information, howsoever caused, including due to the negligence of the REEF SA/NT. Page 6 of 6