Also known as a commission draw or draw against commissions. A payment to a commissioned sales employee as an advance or loan against future, unearned commissions. A draw against commissions is an alternative to a straight commission (commission only) or salary-plus-commission payment scheme. Commission draws may be recoverable or non-recoverable.

A recoverable draw is a fixed amount advanced to an employee within a given time period. If the employee earns more in commissions than the draw amount, the employer pays the employee the difference after the commissions have been earned. If the employee earns less in commissions than the draw amount, the employee owes the difference to the employer, and the employer reserves the right to recover that difference at a later date. The deficit between the draw paid and the commission earned in a draw period is typically deducted from commissions earned in the next draw period.

Employers periodically reconcile recoverable draw accounts, and may seek repayment of any amounts due. Employers may cap recoverable draw payments and stop making draw payments until the employee earns sufficient commissions to reduce the amount of draw owed either to $0 or a specified amount. If there is a negative balance in the draw account at the end of the reconciliation period or on termination of employment, the draw deficit is owed to the employer. However, applicable state or local laws may limit the employer's ability to recover that amount from other amounts payable to the employee, such as salary, bonus or payment for accrued but unused vacation.

A non-recoverable draw is also a fixed amount paid in advance of earning commissions, but functions more as a minimum guaranteed periodic payment to the employee. It is commonly used for new sales employees for a fixed period of time. As with a recoverable draw, if the actual commissions earned in a given draw period exceed the draw amount, the employer pays the difference. However, even if the employee does not earn commissions that equal or exceed the draw amount in a given draw period, nothing is owed to the employer and the draw deficit is not applied against future commissions or other amounts payable to the employee.

For more information on commissions and commission plans, see:

For state law requirements, see Commissions Owed on Termination State Laws Chart: Overview.