Sales Commission and Tipping

By Emma Bott


Tipping and commission is a system of compensation. Many people rely on tipping, as it makes up the  majority of some people’s incomes. This can be hard for people as they are not always consistent forms of getting money; there is also the issue of people expecting tips and commission when the quality of their work is not up to par.


Tipping is a sales custom that is present mostly in North America. It is supposed to be at the discretion of the customer and is a set percentage of the total amount of the bill; in Canada, this is typically 15-20%. This practice originated in Europe and spread to North America. The non-tipping movement has actually gained a great deal of strength in Europe; Europeans function under the belief that they are professionals and, therefore, do not need to rely on tips.


Some restaurants have abolished tipping in favour of a service charge that is worth a certain percentage of the tip–or a flat rate. One restaurant owner implemented an 18% service charge that was mandatory.  He said that it has resulted in an overall improvement in food, service, pay, and customer satisfaction. Tipping has created an unhealthy competitive environment. The tip is not incentive to provide quality of service to all customers. Servers tend to give white men better service than people of colour, younger people, older people, foreigners and women. Tips are often used by the restaurant industry to pay servers less than minimum wage. In the United States, workers that work jobs that have tips can be paid as little as $2.16/ hour according to the Washington Post. In Alberta, there use to be a law that people serving alcohol were able to be paid less than minimum wage. This decreases the labour costs of the restaurant and passes the cost off directly to the customer. In order to achieve higher tips, employees have engaged in behaviour that is unethical–such as providing free drinks.


Sexual harassment is a topic that has been in the news a lot recently. It is important to note that servers and other people working in a tipping environment are less likely to report or stand up to harassment for fear of the damage it may do to their tip at the end. Also, a lot of people have a standard percentage that they tip unless the service is incredibly good or incredibly bad. Tipping can be bad for the customer. It can be stressful wondering how much to tip. Often, servers do not declare their cash tips on income taxes.


Commission is money that an individual makes upon the successful completion of a task. It is common within the industries that involve sales such as real estate, cars, and other sales jobs. There are four types of commission: (1) base salary plus commissions, (2) straight commission, (3) draw against commission, and (4) residual commission. Base salary commission is when employees are provided a salary plus a percentage of their sales. This is seen as a more stable income than relying strictly on their commission. Straight commission is when employees only receive a percentage of their sales as compensation; this method can be volatile. Draw against commission is when a small amount of money is drawn out and, at the end of the period, it must be paid back through sales. Residual commission is when the employee earns commission because the customer keeps purchasing from the company.  Commission can be beneficial when employees are good salespeople and the industry is booming, but it can be difficult to make commission when the market is slow.


Commission is the system of compensation that real estate agents receive. When a house is sold, commission is around 5-6% of the price, which is then split between the real estate agent of the buyer and the real estate agent of the seller. The split is usually even, but not always. Neither the federal nor the provincial governments set the commission rate. There has been some recent debate over what percent commission should be as real estate agents are only paid if they are successful. Under the Multiple Listing agreement, you agree on a fee. The commission fee is usually built into the asking fee, and the ease of buying and selling a house tends to depend on the market. Com Free is a way for people to sell their home with real estate agents. The reason a lot of people turn to sites such as Com Free is that they do not see the value in paying the retailer. It is seen as unfair, especially when some houses seem to sell themselves. These easy markets include Vancouver and Toronto. They see cutting out the retailer as a way to save money. You will still need to employ the services of a lawyer and, preferably, an appraiser to estimate the fair price as well as a broker to list the house. These services are flat fees. Selling your house yourself can be hard as you do not have the extensive connections that your real estate agent possesses. It might save you money, but it’s harder work. Selling houses is not the only way a worker is able to make commission from housing–there is also commission for leasing contracts.


Car salespeople often rely on commission. Those who work at dealerships have a salary, but the salary can be on the low side– as low as $30,000 a year. Car salespeople that earn a lot are the ones that can sell twenty or more cars. If you are not as good of a salesperson, you would barely be making more than minimum wage. The percentage of commission can vary around 25-30%. One of the harsher realities of the car sales industry is that there is often a quota of at least 8-10 cars a month; if they sell less than the quota, they are often not kept around. Selling cars can be hard during deep recessions.


Lawyers can charge more than $1000 for an hour of their time and that is without being successful. Some lawyers are compensated by a portion of a settlement.  A lot of the time, the percentage of the settlement as compensation is not the main compensation as there is still a fee that must be paid for time and resources. In some instances, lawyers will accept commission through the settlement. This only happens if the clients lack the necessary resources to pay the fees and the lawyer believes the client has a strong case. In these instances, the commission from the settlement is usually higher.


Electronics sales are also a common industry in which commission is paid. The commission payments can get quite high with electronics such as TVs, computers, phones, and tablets. Often, salespeople of these items must spend lots of time with clients in order to help them decide on a product that is right for them. Other times, customers come in and know exactly what they want with no help. Is it fair that employees get the same commission for varying degrees of work? Theoretically (and hopefully) they’ll even out, but it’s impossible to know if it does.


When consulting an individual who has worked in both tipping and commission environments, they stated that commission is often a good motivator to try harder. Tipping is based more on customers’ opinions and is therefore more unpredictable than commission, which is a set percentage of sales. This is not to say that you are guaranteed a certain amount of compensation, however. Sometimes, the question is whether or not tipping and sales commission are really the right way to pay people. If you are successful, tipping and compensation can be a great way to make a lot of cash; still, your success mostly depends on luck and the right market. It can be stressful for people to support themselves.  It can cause undue burden on people. When it comes to income, people need some degree of stability, and that is something that both tipping and commission are unable to guarantee.

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