Hiring a Sales Representative: Contract Terms for Commission-Based Selling (Client/Buyer Guide)

When a B2B company starts scaling revenue, one of the fastest ways to expand coverage is to hire a sales rep on a commission basis—especially in new territories, niche verticals, or partner-driven markets. But commission-only and commission-heavy arrangements can create disputes if expectations aren’t crystal clear. That’s why a well-drafted hire sales rep contract matters as much as onboarding, pipeline reviews, or product training.

From the client/buyer perspective (the company engaging the rep), the right contract protects your margins, your customer relationships, your data, and your brand—while still being attractive enough for top performers to sign. This post walks through the most important terms for a commission sales agreement, with a particular focus on working with non-employee reps under an independent sales representative contract or sales contractor agreement.

Note: This article is educational and not legal advice. Consider local counsel for your jurisdiction and industry-specific requirements.

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Why commission-based selling needs tighter contracts than you think

Commission arrangements are deceptively simple: “You sell, you get paid.” In practice, the hard questions are where relationships break:

• When is a deal “earned”—on signature, invoice, payment, delivery, renewal?
• Who owns the account when territories overlap?
• What happens if the customer churns or fails to pay?
• Can the rep represent competitors?
• Does the rep have authority to negotiate pricing or promise delivery dates?
• Who controls customer data and CRM access?

These questions are avoidable if your sales contractor agreement is built around your actual GTM motion (direct sales, channel, hybrid), your billing model (subscription vs. one-time), and your operational realities (returns, cancellations, implementation milestones).

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Employee vs. independent sales representative: classify correctly

Many B2B companies prefer independent reps because they offer flexibility and reduced fixed payroll costs. But classification issues can be costly.

A proper independent sales representative contract should reflect the practical reality that the rep:

• Controls how/when they work
• Uses their own tools and processes (within your brand guidelines)
• Can work for other clients (subject to negotiated restrictions)
• Is responsible for their own taxes and insurance

Avoid “employee-like” control in the contract if you truly want an independent contractor relationship (e.g., mandatory hours, detailed day-to-day supervision, required exclusivity without consideration). Misclassification can lead to tax liabilities, penalties, and retroactive benefits claims.

Contract tip (buyer perspective): If your model requires tight control (exclusive full-time selling, strict direction, mandatory meetings), consider an employment model instead of forcing it into an independent contractor box.

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Core structure of a hire sales rep contract (what to include)

A strong hire sales rep contract generally covers:

1. Parties and relationship (independent contractor status)
2. Scope of work (products, activities, support obligations)
3. Territory / accounts / vertical assignment
4. Commission plan and payment mechanics
5. Lead ownership and deal attribution
6. Quotas (if any), performance expectations, reporting
7. Sales process rules (pricing, discounts, approval workflow)
8. Confidentiality, IP, data protection, CRM usage
9. Non-solicitation / non-compete (where enforceable)
10. Term, termination, and post-termination commissions
11. Indemnification, liability, insurance
12. Dispute resolution, governing law, compliance

Let’s break down the most important commission-specific provisions.

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1) Define the scope: what exactly is the rep responsible for?

In a commission sales agreement, scope should be specific enough to prevent misunderstandings while leaving room for reasonable flexibility.

Include:

• Products/services covered: specific SKUs, service lines, or “all offerings as updated”
• Customer segment: SMB/mid-market/enterprise; industry verticals
• Sales activities: prospecting, demos, pipeline management, partner recruiting, trade shows
• Support expectations: who does proposals, legal redlines, onboarding handoffs
• Authority limits: clarify the rep cannot bind your company without written approval

Buyer-friendly language: Make it explicit that the rep has no authority to contract and cannot promise pricing, timelines, service levels, or product capabilities outside approved materials.

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2) Territory and account assignment: prevent channel conflict

Disputes often come from “who owns the deal.” Your independent sales representative contract should define one (or more) of these:

• Geographic territory (e.g., Midwest U.S.)
• Named accounts list (ideal for enterprise)
• Vertical territory (e.g., logistics, manufacturing)
• Channel territory (e.g., distributors vs. direct end users)

Also include rules for:

• House accounts (strategic accounts you keep direct)
• Inbound leads (marketing-generated, partner-generated)
• Account reassignments (if rep is inactive, performance issues, or coverage needs change)

Best practice: Specify that your company can reassign territories/accounts with notice, and describe how commissions will be handled for in-flight opportunities.

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3) Commission structure: spell out the math and the “commissionable event”

The centerpiece of any commission sales agreement is how commission is calculated and when it is earned.

Common commission bases

• Percentage of Net Revenue (recommended)
• Gross margin commission (good for protecting profitability)
• Tiered commissions (higher rates above targets)
• Flat fees per closed deal (simpler, less aligned with deal size)

Define “Net Revenue” precisely

If you pay on net, define deductions, such as:

• Discounts and rebates
• Credits and refunds
• Chargebacks
• Taxes, shipping, duties
• Payment processing fees (optional)
• Third-party pass-through costs (implementation partners, licensing fees)

Set the “commissionable event”

Choose one and define it clearly:

• Contract signature date
• Invoice issuance
• Customer payment received (most buyer-protective)
• Implementation milestone (useful for services-heavy deals)
• Renewal payment (for subscription/recurring revenue)

Buyer perspective recommendation: Tie commission to cash received or a hybrid milestone (e.g., 50% on signature, 50% on first payment) to reduce the risk of paying commission on deals that cancel, churn immediately, or never pay.

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4) Timing of payments and commission statements

A sales contractor agreement should include:

• Payment schedule (e.g., monthly within 15 days after month-end)
• Statement delivery (what data you’ll provide: invoices, paid amounts, deductions)
• Dispute window (e.g., rep must dispute within 30–60 days)
• Audit rights (limited, reasonable, and confidential)

Tip: Add an administrative clause: “Company’s records are controlling absent manifest error,” while still allowing good-faith corrections.

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5) Chargebacks, clawbacks, and cancellations

If you pay on signature or invoice, you need a clawback policy. Even if you pay on cash received, you should address refunds and reversals.

Include:

• Chargeback events: refund, cancellation, non-payment, fraud
• Time limit: e.g., clawbacks apply within 6–12 months
• Method: netting against future commissions

Keep it commercially reasonable. Reps will push back on unlimited clawbacks. A defined window and clear triggers are easier to accept.

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6) Renewals, expansions, and residual commissions

B2B revenue often comes from renewals, upsells, and expansions—not just the initial contract. Your commission sales agreement should state:

• Does commission apply to renewals? For how long (e.g., first renewal only; 12 months; life of account)?
• Are upsells/cross-sells commissionable if the rep is not involved?
• What if the account is handed to an account manager—does the rep still earn residuals?

Buyer-friendly approach:

• Pay renewals only if the rep has defined ongoing responsibilities (account reviews, renewal support) or
• Offer a smaller residual rate for a limited period (e.g., 3–12 months) to reward origination while controlling long-term cost.

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7) Lead ownership, attribution, and CRM rules

Attribution is where commission disputes are born. Your independent sales representative contract should include:

• Definition of a “qualified lead”
• Rules for lead registration (timestamped submissions)
• CRM usage requirements (mandatory logging of activities and stage updates)
• Attribution hierarchy: inbound vs outbound vs partner vs house account
• Tie-breaker mechanism: sales ops decision, escalation steps

Buyer perspective: Make commissions conditional on timely CRM updates. If it’s not in the CRM, it didn’t happen.

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8) Pricing, discounting, and approvals (control your margins)

If independent reps can offer discounts freely, your margins will suffer. Your sales contractor agreement should specify:

• Standard pricing and approved discount bands
• Required approvals (sales manager, finance) for exceptions
• No side letters or unapproved terms
• No promises about roadmap or custom features without approval

Also address who handles contracting: ideally, the company controls the final customer contract and signature process.

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9) Expenses: who pays for travel, tools, and marketing?

Commission-based reps often expect some expense coverage, especially for travel-heavy territories.

Clarify:

• Reimbursable categories (travel, lodging, trade shows)
• Pre-approval requirements
• Caps and documentation (receipts, per diem policies)
• Non-reimbursable expenses (home office, general overhead)

From a buyer perspective, pre-approval and caps prevent surprises and keep CAC predictable.

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10) Confidentiality, IP, and data protection

Independent reps frequently work with multiple companies; confidentiality must be tight.

Include:

• Confidential information definition (pricing, customer lists, roadmap, playbooks)
• Use restrictions and return/destruction obligations
• Security requirements (device, password, storage, no unauthorized sharing)
• Data protection compliance (especially if handling personal data)

Also clarify:

• Ownership of customer data and CRM records stays with the company.
• Any sales materials you provide remain your IP.
• Any rep-created materials based on your content may be assigned to you (where appropriate).

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11) Non-solicitation and non-competition (use carefully)

Enforceability varies widely by jurisdiction. Still, many B2B companies use:

• Non-solicitation of customers (for a defined period, e.g., 12–24 months)
• Non-solicitation of employees/contractors
• Limited non-compete (if enforceable and narrowly tailored: specific territory, term, and product category)

Buyer perspective: A narrow, realistic restriction is more enforceable than a broad one. If the rep is truly independent, absolute exclusivity or broad non-competes can be harder to justify.

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12) Term, termination, and post-termination commissions (critical)

Most disputes arise after termination: “I built the pipeline—do I still get paid?”

Your hire sales rep contract should address:

• Term: fixed term (e.g., 12 months) or month-to-month
• Termination for convenience: notice period (e.g., 30 days)
• Termination for cause: immediate for breach, fraud, misconduct, confidentiality violations
• Post-termination commissions:
  • Commissions on deals closed before termination but paid after
  • Commissions on deals in pipeline at termination (define a “tail” period)

Tail period options

• No tail: simplest, toughest on reps
• Short tail (30–90 days): common compromise
• Long tail (6–12 months): used for long enterprise cycles

Buyer-friendly but fair approach: Pay commissions for deals that close within a defined tail period only if the opportunity was properly registered, actively worked, and documented in the CRM prior to termination.

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13) Compliance: anti-bribery, sanctions, and industry rules

Independent reps may interact with government entities, procurement teams, or regulated industries. Your independent sales representative contract should include:

• Anti-bribery / anti-corruption compliance (e.g., no improper payments)
• Export controls and sanctions compliance (if applicable)
• Gift and entertainment limits
• Accurate recordkeeping requirements

This is especially important if you sell internationally or into highly regulated sectors.

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14) Indemnification, limitation of liability, and insurance

From the client/buyer side, protect your company against:

• Misrepresentations made by the rep
• Unauthorized commitments
• Violations of law
• IP misuse in rep-created materials

Common provisions:

• Rep indemnifies company for certain claims arising from their conduct
• Limitation of liability (often mutual, but buyer may want stronger protection)
• Insurance requirements (general liability; professional liability if relevant)

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Practical checklist: commission sales agreement terms B2B buyers should prioritize

If you only perfect a few sections of your commission sales agreement, focus on these:

1. Commissionable event (signature vs invoice vs cash received)
2. Net revenue definition and deductions
3. Chargebacks/clawbacks (window + method)
4. Territory/account rules + house accounts
5. Lead registration + CRM attribution
6. Discounting authority and approvals
7. Termination + tail period and documentation requirements
8. No authority to bind and compliance obligations

These directly reduce disputes and protect CAC and gross margin.

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Common mistakes when using a sales contractor agreement template

Many companies grab a generic template and miss key commercial points. Watch out for:

• Commission clause that doesn’t define when earned
• No mention of refunds, churn, or non-payment
• Territory language that conflicts with how your marketing and SDR team actually routes leads
• Overly broad non-competes (less enforceable)
• No CRM or reporting obligations (hard to verify performance)
• No confidentiality/data security specifics (risky with customer info)
• No clear post-termination rules (highest dispute area)

A template can be a starting point, but your sales motion needs to be reflected in the contract.

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Final thoughts: make the contract match your go-to-market motion

A strong hire sales rep contract isn’t about being overly legalistic—it’s about aligning incentives and documenting operational reality. If your rep can’t predict how they get paid, you’ll lose talent. If your company can’t predict commission cost and account ownership, you’ll lose margin and customers.

If you want a faster way to produce a tailored independent sales representative contract, commission sales agreement, or sales contractor agreement that matches your business model, you can generate a draft using Contractable, an AI-powered contract generator, at https://www.contractable.ai.

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Other questions to keep learning

• What’s the difference between a sales representative agreement and a broker agreement?
• How do I structure commission rates for subscription (ARR/MRR) vs one-time deals?
• Should commissions be based on booked revenue, billed revenue, or cash collected?
• What is a reasonable commission “tail period” for long enterprise sales cycles?
• How do I handle split commissions when multiple reps contribute to a deal?
• Can an independent sales rep represent competitors, and how should exclusivity be drafted?
• What clauses reduce risk when selling into government or regulated industries?
• How do I avoid contractor misclassification risks while still setting performance expectations?
• What should I include in a lead registration policy to avoid channel conflict?
• How can I audit commissions without damaging the rep relationship?