# Commission-only or salaried broker: which pay model is better?
Commission-only pays a broker more above a break-even level of production and less below it; a salary moves the risk of a poor year to the firm.
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Neither model is better in general: commission-only pays a broker more once the fees they generate pass a break-even level, and a salary or a base pays more below that level, because the firm, not the broker, absorbs a poor year. The choice is therefore a question of who carries the risk of a bad year, who pays the running costs of the job, and how predictable the broker's production really is.
The same logic holds in business sales, real estate, yachts, equipment, freight, insurance and commodities, although the usual model differs from one trade to the next and the legal status that goes with each model depends on the country and sometimes the state. What follows compares three models on the same criteria: straight commission, a base plus commission, and a salary with a bonus. A single worked example, with every assumption stated, shows what each model pays the broker and leaves the firm in a good, an average and a poor year. The figures are illustrative, not market rates, and the passages on employment status are general information, not legal or tax advice.
$195,000of fees generated in a year: where straight commission starts to beat the base plus commission
$180,000of fees generated in a year: where straight commission starts to beat the salary
$160,000of fees generated in a year: where the base plus commission starts to beat the salary
Break-even points of the worked example in this article: a 70% split with $30,000 of own expenses, a $48,000 base plus 30%, and a $96,000 salary. Illustrative assumptions.
## What are the pay models a broker can be on?
A broker is paid on one of three basic models: commission only, a fixed base plus a smaller commission, or a salary with or without a bonus. Every other arrangement on the market, including draws, caps, tiers and desk fees, is a variation on one of those three.
On **commission only**, the broker receives a share of each fee they bring in and nothing else. The share is called the split: on a 70/30 split, the broker keeps 70% of the fee and the firm keeps 30%. Income is zero in a month without a closed deal. This is the usual model for independent brokers in real estate, business brokerage, yacht sales and equipment finance, and for most introducers.
On a **base plus commission**, the firm pays a fixed amount every month and a lower percentage of the fees. The base covers living costs; the commission keeps the link between effort and reward. The model is common on freight brokerage floors, on commercial insurance desks and in the junior and mid-level ranks of larger intermediary firms.
On a **salary**, the broker is paid for the job rather than for each deal, usually with a bonus decided by the firm or tied to a target. Salaried brokers are found where deals are won by a team, where the sales cycle runs for a year or more, where the client belongs to the firm rather than to the person, and in roles that service existing accounts instead of hunting for new ones.
## How do the three models compare on the same criteria?
The three models differ on six points: who carries the risk of a poor year, how high the earnings can go, who pays the expenses, how much the firm directs the work, what happens when cash is short, and which legal status usually goes with the model. The table sets them side by side.
| Criterion | Commission only | Base plus commission | Salary with bonus |
| --- | --- | --- | --- |
| Who carries a poor year | The broker | Shared | The firm |
| Upside in a strong year | Highest, uncapped | Moderate | Limited to the bonus |
| Running expenses | Usually the broker | Usually the firm | The firm |
| Firm's direction of the work | Lowest | Medium | Highest |
| Income between deals | None, or a draw | The base | The salary |
| Usual status | Often independent contractor | Usually employee | Employee |
Two lines of this table are often overlooked when comparing offers. The expenses line can move the result by tens of thousands a year, because a 70% split out of which the broker funds their own marketing, travel, licences and insurance is not worth 70% of the fee. The status line decides who pays payroll taxes and whether paid leave, sick pay and a retirement plan exist at all, and it is a matter of law, not only of what the contract says.
## How much does a broker earn under each model in a good, an average and a poor year?
In the worked example below, straight commission pays the broker $250,000 in the good year and $40,000 in the poor one, the base plus commission pays $168,000 and $78,000, and the salary pays $104,000 and $96,000. The ranking of the three models reverses completely between the good year and the poor year.
The assumptions are the same for all three models. One broker generates fees for the firm, called gross commission income: $400,000 in a good year, $240,000 in an average year and $100,000 in a poor year. The costs of doing the job, which cover marketing, travel, licences, insurance, data subscriptions and a phone, come to $30,000 a year whatever the production.
- **Model A, commission only.** The broker keeps 70% of the fees and pays the $30,000 of expenses personally. No base, no draw.
- **Model B, base plus commission.** The broker receives a $48,000 base and 30% of the fees. The firm pays the expenses.
- **Model C, salary with bonus.** The broker receives a $96,000 salary and a bonus of 5% of the fees above $240,000. The firm pays the expenses.
| Year (fees generated) | A: commission only | B: base plus commission | C: salary with bonus |
| --- | --- | --- | --- |
| Good ($400,000) | $250,000 | $168,000 | $104,000 |
| Average ($240,000) | $138,000 | $120,000 | $96,000 |
| Poor ($100,000) | $40,000 | $78,000 | $96,000 |
| **Three-year average** | **$142,667** | **$122,000** | **$98,667** |
Each cell follows from the assumptions. In the good year, model A gives 70% of $400,000, which is $280,000, less $30,000 of expenses. Model B gives $48,000 plus 30% of $400,000, which is $120,000. Model C gives $96,000 plus 5% of the $160,000 above the threshold, which is $8,000. The figures are before income tax in all three models, and model A is also before the social contributions a self-employed person pays on their own account.
Over one good, one average and one poor year, straight commission pays the most on average: $142,667 a year against $122,000 and $98,667. That higher average is the price the firm pays for handing the risk to the broker. It is also only an average. A broker on model A lives through the $40,000 year with the same rent, the same $30,000 of costs and no employer benefits, and the fixed expenses that took about 11% of their share in the good year take about 43% of it in the poor one.
## Where is the break-even between commission-only and a salary?
In the worked example, straight commission overtakes the salary at $180,000 of fees generated in a year and overtakes the base plus commission at $195,000. Below those levels the broker is better off with fixed pay; above them, each extra dollar of fees is worth more on commission.
The break-even is the level of production at which two models pay the same. To find it, write each model as a fixed part plus a percentage of the fees, then divide the difference between the fixed parts by the difference between the percentages.
- **Commission only against base plus commission.** Model A pays 70% of fees minus $30,000. Model B pays $48,000 plus 30% of fees. The fixed parts differ by $78,000 and the percentages by 40 points: $78,000 divided by 0.40 is $195,000. At that level both pay $106,500.
- **Commission only against salary.** Model A must reach $96,000 after $30,000 of expenses, so the broker's share must be $126,000: divided by 0.70, that is $180,000 of fees.
- **Base plus commission against salary.** The base is $48,000 short of the salary, and 30% of fees closes the gap at $160,000.
The method works with any offer. Replace the split, the base, the salary and, above all, an honest estimate of your own annual expenses, and the break-even of your own choice falls out in one line. Then compare it with what you have actually produced, not with what you hope to produce: the average of your last three years if you have a record, or the firm's figures for brokers in their first two years if you are starting.
## How much does income swing from one year to the next under each model?
Between the good year and the poor year of the worked example, the broker's income moves by $210,000 on straight commission, by $90,000 on the base plus commission and by $8,000 on the salary. Variance, more than the average, is what separates the three models.
Gap between the good year and the poor year, by pay modelBroker's income in the good year minus income in the poor year, worked example
Fees generated: $400,000 in the good year, $100,000 in the poor year. Illustrative assumptions, before tax.
On straight commission the good year pays 6.25 times the poor year, although the fees generated are only four times higher. The fixed $30,000 of expenses is the reason: costs that do not fall with production amplify every swing in the broker's net income. A commission-only broker who can cut expenses in a slow year narrows the gap; one locked into a desk fee, a lease and annual subscriptions does not.
The swing within a year matters as much as the swing between years. A business broker or a yacht broker may close four or five deals in twelve months, with nothing for a quarter and then two fees in the same week. Annual income can look comfortable while the cash position in month five is negative. The practical answers are a reserve of several months of living costs and expenses, a tax account fed from every fee, and, where the firm offers one, a draw.
## What is a draw against commission, and how is it repaid?
A draw against commission is an advance the firm pays at regular intervals and then deducts from the commissions the broker earns. It smooths the broker's cash without changing what the broker earns over the period, unless the draw is of the non-recoverable kind.
A **recoverable draw** is a loan against future commission. If the commissions earned in a period are lower than the draw, the shortfall is carried forward and deducted from later commissions. A **non-recoverable draw** is a guaranteed minimum: if commissions fall short, the broker keeps the draw and the shortfall is not carried forward. Firms tend to offer the non-recoverable kind for a limited time, typically while a recruit builds a pipeline, and the recoverable kind afterwards.
A $5,000 monthly draw over one quarterWorked example: commissions earned of $0, $0 and $21,000
Month oneNo deal closes. The firm pays the $5,000 draw. On a recoverable draw the broker now owes $5,000 to future commissions; on a non-recoverable draw nothing is owed.
Month twoNo deal closes again. The firm pays another $5,000. The recoverable balance carried forward rises to $10,000.
Month three, recoverable drawThe broker earns $21,000 of commission. The firm deducts the month's $5,000 draw and the $10,000 carried forward, and pays the remaining $6,000 on top of the draw: $11,000 received in the month, $21,000 over the quarter, exactly the commission earned.
Month three, non-recoverable drawThe broker earns the same $21,000 and receives all of it, because the two earlier draws are not recovered: $31,000 over the quarter, $10,000 more than the commission earned, paid by the firm.
Three clauses decide what a draw is really worth, and each belongs in the written agreement. The first is the period over which the draw is reconciled: monthly, quarterly or yearly. The second is what happens to an unrecovered balance when the broker leaves; whether a firm may claim it back from a departing broker, and from which payments, depends on the contract and on local employment law. The third is whether the draw stops after a number of months below target. A draw with a twelve-month reconciliation and no repayment on departure is close to a base; a monthly draw repayable in full on leaving is a loan.
## Who pays the expenses, and how much do they change the comparison?
Expenses are usually the broker's on commission only and the firm's on a base or a salary, and they have to be deducted before any two offers can be compared. A split is a share of the fee, not a share of the profit.
In the worked example, the $30,000 of expenses turns a 70% split into an effective 62.5% of fees in the good year, 57.5% in the average year and 40% in the poor year. The typical items are marketing and listings, travel to clients and assets, licence and association fees, continuing education, professional indemnity insurance, market data, software, a vehicle and a phone. Many commission-only firms add charges of their own: a monthly desk fee, a franchise or technology fee, a per-transaction fee, or a contribution to insurance.
A cap changes the same arithmetic from the other side. Some firms stop taking their share once it reaches a yearly ceiling. With a $24,000 cap on the firm's 30%, the cap is reached at $80,000 of fees, and in the $400,000 year the broker of model A would keep $346,000 after expenses instead of $250,000. A cap raises the upside of commission only without touching the poor year.
## What does each model cost the firm?
For the firm, commission only turns the broker into a variable cost, while a base or a salary creates a fixed cost that pays off only if production holds. The firm's result in the worked example is the mirror image of the broker's.
The table uses the same three years. On model A the firm keeps 30% of the fees and pays none of the broker's expenses. On models B and C the firm pays the broker, the $30,000 of expenses and employer on-costs, taken here at an illustrative 10% of pay for payroll taxes and benefits. General overheads such as premises, management and compliance are left out of all three columns.
| Year (fees generated) | A: firm keeps 30% | B: after base, 30% and costs | C: after salary and costs |
| --- | --- | --- | --- |
| Good ($400,000) | $120,000 | $185,200 | $255,600 |
| Average ($240,000) | $72,000 | $78,000 | $104,400 |
| Poor ($100,000) | $30,000 | −$15,800 | −$35,600 |
| **Three-year total** | **$222,000** | **$247,400** | **$324,400** |
The firm that pays a salary earns the most over the three years, $324,400 against $222,000 on commission only, and it is the only one exposed to a real loss: $35,600 in the poor year, before overheads. The salaried broker has to generate $135,600 of fees for the firm to cover pay, on-costs and expenses, and the broker on a base has to generate about $123,600. On commission only the firm's share is never negative, which is why a firm can afford to take on many commission-only brokers and give each of them time.
## Is a commission-only broker an employee or an independent contractor?
The pay model does not decide the legal status: a commission-only broker can be an employee, and status depends on the facts of the working relationship under the law of the country or state concerned. Commission only and contractor status often go together, but one does not prove the other.
In the United States, the Internal Revenue Service applies common-law rules grouped in three categories: behavioural control, meaning whether the firm controls or has the right to control what the worker does and how; financial control, which includes how the worker is paid, whether expenses are reimbursed and who provides tools; and the type of relationship, including written contracts and benefits. The agency states that no one factor stands alone. An employer must generally withhold income tax and pay its share of Social Security and Medicare taxes for an employee, and does not withhold or pay those taxes on payments to an independent contractor, who instead pays self-employment tax, which the Internal Revenue Service gives as 15.3%: 12.4% for Social Security and 2.9% for Medicare.
One category of broker has a rule of its own. Under United States federal tax law, the Internal Revenue Service treats licensed real estate agents as statutory nonemployees, self-employed for federal tax purposes, when two conditions are met: substantially all payments for their services are directly related to sales or other output rather than to hours worked, and the services are performed under a written contract providing that they will not be treated as employees for federal tax purposes. The rule covers federal tax; state law and other statutes apply their own tests.
A commission-only employee raises a different question, the minimum wage. Under the federal Fair Labor Standards Act, the Department of Labor's outside sales exemption removes both minimum wage and overtime requirements for an employee whose primary duty is making sales or obtaining orders or contracts, and who is customarily and regularly engaged away from the employer's place of business; no salary requirement applies to that exemption. A commission-only employee who sells from the firm's office does not fit that description, and other rules then apply.
In the United Kingdom, government guidance lists the signs of self-employment, among them quoting for work, working without direct supervision, invoicing for completed work, and receiving no holiday or sick pay. It also notes that the tax authority may regard a person as self-employed for tax purposes even if their status in employment law is different.
For the comparison of offers, status has a money value. A contractor's commission has to fund what an employer would otherwise provide: both halves of social contributions where they apply, paid leave, sick days, health cover in countries where the employer normally provides it, and retirement saving. A commission-only figure and a salary figure are only comparable once those items have been priced.
## Which model suits which broker, and which firm?
Commission only suits a broker with a proven pipeline, reserves and control over their own expenses; a base plus commission suits a broker building a book or working long cycles; a salary suits team-based or account-servicing roles. For the firm, the choice follows how much it wants to direct the work and how much fixed cost it can carry.
- **You are new to the trade.** Your first-year production is likely to sit below the break-even. A base, a non-recoverable draw for a stated period, or savings covering a year of living costs and expenses is what makes the start possible. A high split on fees that do not exist yet is worth nothing.
- **You have three years of steady production above the break-even.** Each year on fixed pay costs you the difference shown by the arithmetic. Commission only, with a cap if one is offered, pays for the risk you have shown you can carry.
- **Your deals are few and large.** The annual average may favour commission while the cash profile does not. Look at the draw terms and the reconciliation period before the split.
- **Your deals are won by a team.** When origination, execution and client service are done by different people, attributing a fee to one person causes disputes. A salary with a bonus pool, or a base with a team commission, fits the work better.
- **You run a firm with limited capital.** Commission only keeps costs variable, at the price of less direction over the brokers and a lower share of each fee.
- **You run a firm that owns the clients and the process.** A base or a salary buys the right to direct the work, and costs more in a poor year. Budget for the break-even of each seat before hiring.
Whatever the model, write it down: the percentage and the base on which it applies, the expenses each side pays, the draw and its reconciliation, the timing of payment after the firm receives the fee, and what is owed on deals in progress when the broker leaves.
## How does the pay model change the way the fee is shared when a deal closes?
A salaried broker is paid by the firm's payroll whatever happens to a given fee, while a commission-only broker's income depends on each fee arriving and being divided correctly. The more of the pay that is commission, the more the mechanics of the payment itself matter.
On a commission-only arrangement, a single fee is commonly divided between the firm, the broker and sometimes a co-broker or a referrer, in sequence: the client pays the firm, the firm pays the broker, and one of them pays the referrer. Each step is a delay and a place where a figure can be disputed. Agreeing every share in writing before the client pays removes most of that friction, whoever moves the money.
Where one payment has to reach several parties, a payment router is one way to do it. Shaka is such a router: each party's share is set as a percentage of the deal and can be signed by each recipient before the client pays, the client pays once, and every party is paid their share at the same moment, in one transaction, with the payment final. It routes the funds and never holds them, and a deal has at most 20 recipients. It is not a payroll tool, so it has no part in paying a base or a salary.
When two offers carry the same split, compare also the number of days between the firm receiving a fee and the broker being paid: on straight commission, the broker's own reserve finances that interval.