Paying an employee a commission

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Maryann

SGF, Supreme Grumble Framer
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Shippensburg, PA 17257 USA
I have a part time employee who is working on her masters degree in interior design.

She is starting to do interior design work for some locals and has picked up a few clients from our gallery (with my knowledge and recommendations). In the past month, she has brought in a few pieces from these clients on her work days, designed them, executed them, delivered them and then brought in the payment.

I'm thinking that I should give her a commission on the pieces that she brings in. I expect her business will continue to grow until she reaches a point and leaves my employ. ;-(

What are the pros and cons of paying an employee a commission. I have thought of several but wondering what experience others have had before I start down this road. What have I missed?
 
I think the use of your shop and the whole experience is enough commission. I would not pay her extra. However, I would consider a Holiday bonus, or a raise next January if the shop is doing well and she is overall a great asset to the business.
 
Maryann,

My personal opinion is that a part time employee isn't eligible for full time wages, company benefits, vacation pay, or any of the other perks that go along with a full time job. That would include any commission on sales made through the gallery.

If she wanted to continue as a full time employee after graduation, then you could work out a full time agreement with her that would include a commission based on monthly sales or whatever you felt was fair for all concerned. But a part timer isn't qualified for these benefits until such time that they take on the responsibilities of a full time employee.

That would be my personal opinion on this matter.
 
Sounds like the arrangement is already mutally beneficial to you both. If she's getting referrals for design work from you and your gallery, no need for further compensation on the referrals you get back.

Sounds like the growth plan for her is to eventually leave your employ. You're providing awesome training for her, knowing she's moving on. No need for further compensation to her. Especially since she is part time.

When the time comes that she's on her own, bringing in referrals, that's the time to establish a good ongoing professional-to-professional referral relationship.
 
There are many variables in making a decision about commissions to employees. It is good that you are doing a little investigation before the issue arrives. Though I see Tom's point, I respectfully submit another opinion...

I guess it would depend on whether or not you are set up to give commissions and still make a profit.
I offer my employee the same consideration that I would give an Interior Designer, but only on the first order. If they bring in a new customer, design the project on their own time, complete the work (grey area, allowed on the clock), collect the check, and pay me they qualify. There are some other grey areas like a design consult or managing the inventory/ordering that are allowable. I had business cards printed up for my employee, and will give him a smaller commission on any new customer that comes in and presents his card as a result of his networking...again, on the first order only.

To me this is like found money and I have set my pricing so that I can offer commissions and still make a decent profit. I really don't think that the issue of full or part time status of the employee is relevant a long as the net result is the same. They could be taking the new customer to one of your competitors.

Note: this arrangement came as a result of a discussion at an annual review. Since I pay my employee at the top end of the scale as it is, and I give bonuses on productivity the only annual increase he gets is a COLA. He wanted to know how else he could increase his bottom line. My answer was "by increasing mine". I believe that at some point employees should be proactive in building the business, and that they should be rewarded for that effort that goes above and beyond their normal duties.
Nothing works for everybody, but this seems to work fairly well for me.

Mutual back scratching is another subject. I believe referrals as freely given, and freely accepted. The difference is when someone takes the onus off of the business owner to capture, design for and manage a customer.
 
Well, I don't think she should get a commission, but you should be giving her whatever discount you give to designers. It's up to her to mark it up for her clients. If that means you "reimburse" the discount after collecting it, I guess you could call that a commission if you want?

But, if it's a "discount" then it is up to her to handle all income/sales reporting to the IRS et al, which IS her responsibility as a business person.

As a "commission" you need to handle it as compensation, which costs you even more in time and money.

If she is a "designer" bringing in business, she should have room to make a profit on the "wholesale" framing she is bringing in. The fact that she is also completing the work for you seems totally orthogonal to me.
 
I agree with Cliff's solution. She is bringing in client's work ...new clients to boot. I give a 15% discount to interior designers and in this situation would do the same.

It's a win-win-win situation and she may leave you eventually or maybe not.

You've got an enterprising employee. If she doesn't leave you have fostered and developed a remarkable employee with determination and a broad background which can do nothing but enhance your business.

If she does eventually leave you the ongoing relationship has already been established and she will surely appreciate that you showed a respect for her bringing in the business and will reward you by continuing when she sets up her own shop.
 
Thanks for your thoughts. It gives me something to think about.
Unfortunately, yes she will leave me sometime. She's a very ambitious young lady. Hopefully not soon.
 
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