Commission Based Employment Contract Template for Saudi Arabia

A Commission Based Employment Contract is a specialized employment agreement that structures employee compensation primarily through performance-based commissions rather than fixed salaries. Under Saudi Labor Law, this type of contract must comply with all standard employment regulations while addressing the unique aspects of commission-based compensation structures.

When do you need this document?

You need this contract when hiring employees whose compensation depends on sales performance, client acquisition, or other measurable business outcomes. This is particularly common in real estate agencies, insurance companies, retail operations, financial services firms, and technology sales organizations. The contract is essential when establishing sales territories, setting performance targets, or creating incentive structures that align employee compensation with business results. You also need this agreement when converting existing employees from fixed salary structures to commission-based arrangements, or when hiring independent contractors who will work exclusively for your company under employment terms.

Key legal considerations

Commission calculation methods must be clearly defined, including base rates, tiered structures, and payment timing to avoid disputes. The contract should specify minimum wage guarantees to ensure compliance with Saudi Labor Law requirements for basic compensation. Performance metrics and measurement periods need precise definition, along with procedures for handling disputed commissions or performance assessments. Territory assignments, client ownership rules, and non-compete provisions require careful drafting to protect business interests while remaining enforceable. The agreement must address what happens to pending commissions upon termination, including earned but unpaid amounts and commissions on deals closed after employment ends. Draw policies and advance payment terms should be established to manage cash flow while ensuring compliance with Wage Protection System regulations.

Legal requirements in Saudi Arabia

Under Royal Decree No. M/51, commission-based employees retain all standard employment rights including annual leave, sick leave, and end-of-service benefits calculated on total compensation including commissions. The contract must specify working hours and overtime policies, even for commission-based roles, to comply with Saudi labor regulations. Social insurance contributions through GOSI must be calculated on actual earnings including commissions, requiring accurate reporting and documentation. The Wage Protection System mandates that commission payments follow specific timing and documentation requirements, with electronic salary certificates and bank transfers. Termination provisions must comply with Saudi Labor Law notice periods and severance calculations, factoring in average commission earnings over specified periods. The contract should address Zakat and income tax implications for both employer and employee, ensuring compliance with ZATCA regulations for commission-based compensation reporting.