Legal Considerations for Commission Only Sales in Australia

Get the legal foundations right

Commission only sales arrangements can be incredibly effective, but they need to be structured correctly from a legal perspective. Getting this wrong can lead to unexpected tax liabilities, Fair Work claims, or contractor disputes.

This is general guidance, not legal advice. Consult a lawyer for your specific situation.

Contractor vs employee

The most important legal distinction is whether your sales agents are genuine independent contractors or employees in disguise. The ATO and Fair Work Commission look at the substance of the relationship, not just the label you put on it.

Indicators of a genuine contractor arrangement include the agent controls how, when, and where they work. They use their own tools and equipment. They can work for multiple businesses simultaneously. They bear financial risk (no guaranteed income). They can delegate or subcontract the work.

If you control their hours, require them to work exclusively for you, provide all their tools, and direct how they do their work, they may legally be employees regardless of what your contract says.

Written agreements are essential

Every commission only arrangement should be documented in a written agreement covering scope of work and territory, commission rates and payment terms, intellectual property and confidentiality, termination conditions, and dispute resolution.

Without a written agreement, you have no protection if things go wrong. And the agent has no clarity on what they are agreeing to.

Tax obligations

Genuine contractors handle their own tax, including GST if they earn above the threshold. You do not withhold PAYG for contractors. However, you may need to report payments through the Taxable Payments Annual Report (TPAR) depending on your industry.

If the ATO reclassifies your contractors as employees, you could be liable for back payment of superannuation, PAYG withholding, payroll tax, and penalties.

Superannuation considerations

Even for genuine contractors, you may need to pay superannuation if they are paid principally for their labour. This is a nuanced area and one where professional advice is strongly recommended.

Consumer law compliance

Your agents must comply with Australian Consumer Law when selling your products. They cannot make misleading claims, engage in unconscionable conduct, or use high pressure tactics. You can be held vicariously liable for their conduct, which is why clear guidelines and monitoring are essential.

Non compete and restraint clauses

You can include restraint of trade clauses in your agent agreements, but they must be reasonable in scope, duration, and geography to be enforceable. Overly broad restrictions are unlikely to hold up in court.

How Zepys helps with compliance

Zepys structures the relationship as a marketplace platform, with clear contractor arrangements, transparent commission tracking, and documented terms. This provides a framework that supports compliance, though you should still get independent legal advice for your specific circumstances.