Draw-Against-Commission Agreement Template
A ready-to-adapt draw-against-commission agreement that clearly separates recoverable draws (advances carrying a repayment obligation) from non-recoverable draws (a guaranteed floor) — useful to reps signing one and leaders drafting one.
What's inside
- Recoverable vs. non-recoverable comparison table (what happens if commissions don't cover the draw, termination risk, best-use case)
- Draw type selection clause
- Draw amount & payment schedule fields
- Earned Commission definition clause
- Recoupment/reconciliation mechanics clause with true-up cadence and max carry period
- Non-recoverable guarantee clause
- Termination treatment clause (resignation, for-cause, without-cause)
- Overpayment / general clawback clause
- Signature block
- Drafting notes for leaders on when to default to non-recoverable
Important: This is a plain-English starting template, not legal advice. Draw-against-commission arrangements are regulated differently by state/country (recoverable draws are restricted or banned in some US states — e.g., California treats commission as wages and limits clawback). Have employment counsel review before use.
At a Glance: Recoverable vs. Non-Recoverable
| Recoverable Draw | Non-Recoverable Draw | |
|---|---|---|
| What it is | An advance against future commission | A guaranteed minimum payment, a floor |
| If commissions don't cover it | The shortfall carries forward as a debit against future commission | The company absorbs the shortfall — rep keeps the money |
| Best used for | Ramping reps with strong pipeline visibility | Brand-new reps with zero pipeline history (first 1–3 months) |
| Termination risk | Outstanding balance may be treated as a wage in some jurisdictions — recoupment on the final paycheck is often restricted or unlawful | No recoupment issue — nothing to claw back |
| Rep's perceived risk | Higher — creates a debit they must "dig out of" | Lower — pure floor, no downside |
DRAW-AGAINST-COMMISSION AGREEMENT
This Draw Agreement ("Agreement") is entered into as of [Effective Date], between [Company Legal Name] ("Company") and [Employee Full Name] ("Employee"), and supplements the Employee's [Sales Compensation Plan name/version, e.g. "FY26 AE Compensation Plan v2"] ("Compensation Plan").
1. Position and Compensation Reference
Employee holds the position of [Job Title], reporting to [Manager Name/Title], and is compensated under the terms of the Compensation Plan referenced above. This Agreement governs the draw arrangement only; all other compensation terms (quota, commission rate, accelerators, caps) remain governed by the Compensation Plan.
2. Draw Type
(select one)
- Recoverable Draw — Advances paid under Section 3 are recoverable against future earned commission per the recoupment mechanics in Section 5.
- Non-Recoverable Draw — Advances paid under Section 3 are a guaranteed minimum and are not subject to recoupment under any circumstance, including underperformance or voluntary/involuntary termination.
3. Draw Amount and Payment Schedule
- Draw amount: $[Amount] per [pay period — e.g., semi-monthly]
- Draw period: from [Start Date] through [End Date] — typically the first [1 / 2 / 3] full [months/quarters] of the role
- Payment timing: paid on the Company's standard payroll schedule, subject to standard withholding
- Draw amount step-down (if applicable): [e.g., $6,000/mo in Month 1–2, $4,000/mo in Month 3, $0 thereafter]
4. Commission Earnings Definition
"Earned Commission" means commission calculated per the Compensation Plan on [bookings / collected revenue / closed-won ARR], recognized on the date the underlying deal reaches [contract execution / invoice / cash collection].
5. Recoupment Mechanics (applies only if Recoverable Draw selected above)
- Each pay period, Earned Commission is first applied to offset any cumulative outstanding draw balance.
- If Earned Commission in a period exceeds the draw paid that period, the excess is paid to Employee as normal commission.
- If Earned Commission is less than the draw paid, the shortfall increases the outstanding draw balance, carried forward to future periods.
- True-up cadence: outstanding balances are reconciled and reported to Employee [monthly/quarterly].
- Maximum carry period: outstanding balance may carry forward for no more than [e.g., 2 consecutive quarters] before triggering a compensation-plan review.
6. Non-Recoverable Draw Provisions (applies only if Non-Recoverable Draw selected above)
Any amount paid under Section 3 that exceeds Earned Commission in a given period is a guaranteed payment and creates no debit, offset, or repayment obligation, including upon termination of employment for any reason.
7. Draw Expiration and Transition to Full Commission
Upon expiration of the Draw Period defined in Section 3, Employee transitions to standard commission under the Compensation Plan with no further draw payments, unless extended in writing by [Manager/VP Sales] with a stated reason and new end date.
8. Treatment on Termination (Recoverable Draw only — review with counsel; state/country law varies)
- Voluntary resignation: outstanding draw balance [is / is not] subject to recoupment from final wages, to the extent permitted by applicable law.
- Involuntary termination for cause: outstanding draw balance [is / is not] subject to recoupment, to the extent permitted by applicable law.
- Involuntary termination without cause / layoff: outstanding draw balance [is forgiven / is not recoupable].
- In no case will recoupment reduce final wages below applicable minimum wage requirements for hours worked.
9. Overpayment and General Clawback
If Employee is overpaid due to a calculation error, data error, or reversed/refunded deal (e.g., customer cancellation, chargeback, non-payment) unrelated to the draw mechanics above, Company reserves the right to adjust future commission payments to correct the error, subject to [X] days' written notice and applicable law.
10. Governing Law and Modification
This Agreement is governed by the laws of [State/Country]. Any modification must be in writing and signed by both parties. This Agreement does not constitute a guarantee of continued employment.
Employee Signature: _______________________ Date: __________ Company Representative Signature: _______________________ Date: __________
Drafting Notes for Leaders
- Default to non-recoverable for the first 1–2 months of any new hire's ramp — a rep with zero pipeline history cannot reasonably be put into commission debt.
- Never let a recoverable draw balance run past two quarters uncorrected — at that point it's not a draw, it's a base-pay problem, and the plan needs redesigning.
- Put the true-up statement in writing every cycle. Reps signing a draw agreement should never be surprised by their balance.
How to use it
Select recoverable or non-recoverable in Section 2, fill every bracketed field with your plan specifics, and have employment counsel review before signature — draw clawback rules vary sharply by state/country.