What is a ‘draw’ in terms of income from employment, and how does it work with commission?
An income draw is a method of payroll that is typically employed in a commissioned income environment. It involves supplementing a commissioned sales representatives income with loan to meet a minimum amount of money each pay period. For example, if you were employed in a position with a $2000 monthly draw, you would be guaranteed to earn a minimum of $2000 per month. If your commissioned pay for a given month did not meet the minimum, the draw would kick in and top your income up to that level. You would then be responsible to pay the draw back in a future month when your commissioned income was above the minimum amount.
Income Draws are common in positions where the pay is made up of 100% commission. They are typically only active for the first several months of employment, and designed to ensure that an employee can earn enough income to survive during their ramp up period. It is not common for an employee to have to re-pay the draw if their employment is terminated during their draw period.
Lets look at the example below, which simulates the calculations of an income Draw over the first 6 months of employment at a Bathroom Fixtures Manufacturer.
Draw $3500
Month 1:
Commission $1400
Draw $2100
Total Income $3500
Outstanding Draw $2100
Month 2:
Commission $2900
Draw $600
Total Income $3500
Outstanding Draw $2700
Month 3:
Commission $3400
Draw $100
Total Income $3500
Outstanding Draw $2800
Month 4:
Commission $3800
Draw $-300
Total Income $3500
Outstanding Draw $2500
Month 5:
Commission $4900
Draw $-1400
Total Income $3500
Outstanding Draw $1100
Month 6:
Commission $5300
Draw $-1100
Total Income $4200
Outstanding Draw $0
