Commission payments

Commission payments allow franchises to split payments at source so when a customer pays a franchisee, the franchise gets its commission immediately. This reduces risk and admin in the franchisee agreement.

Configuring the franchise commission

Head to Settings -> Franchise Details and configure your standard commission rate. This can be overridden for individual franchisees on the franchisee page if required. Underneath the commission rate you can also configure the type of payments that apply.

Commission payments are of the net amount charged by the franchisee so it can get confusing especially if some franchises are registered for tax but others not. See examples further down the page for common configurations:

If you are required to charge tax on your commission then it can also be setup on this page. Change the tax dropdown to "add tax to commission" and enter your tax rate. On the individual franchisee page you can also choose to skip the tax on that franchisee if it doesn't apply.

Examples of common commission tax

You charge a 10% commission and 5% tax for franchisees that are in your state

For example a product priced at $100 would mean a $10 commission with an extra $5 for franchisees in your state. To set this up configure the commission to 10%, the tax rate to 5% and select on each individual franchisee whether tax is due or not (ie if they're in your state or not)

You charge a 10% commission and are not VAT registered

For example a product priced at £100 would mean a £10 commission. As commission is calculated on the net amount charged to the customer, it doesn't matter if the franchisee is VAT registered or not (it would be a price of £120 to the consumer but the commission on the net price would still be £10). To setup this configure the commission rate to 10% and leave the tax setup off.

You charge a 10% commission and are VAT registered so 20% VAT is due on the commission. No franchisees are VAT registered

For example a product priced at £100 would mean a £10 commission with 20% VAT due = £12 total. To setup this up configure the commission to 10% and the tax rate to 20%

You charge a 10% commission and are VAT registered so 20% VAT is due on the commission. All franchisees are VAT registered

For example a product priced at £120 (£100 + VAT) would mean a £10 commission as commission is on the net price with 20% VAT due = £12 total. To setup this up configure the commission to 10% and the tax rate to 20%. Although you are taking £12 the franchisee would only "pay" £10 with the £2 being offset against income in their VAT return.

You charge a 10% commission and 20% VAT is due on the commission. Some franchisees are VAT registered, some are not but you want the total paid to be the same regardless of their registration.

To achieve this you alter the commission rate non-VAT franchisees pay. This rate would be 10/1.2 = 8.333% This is calculated as the commission rate (10%) divided by (1 + tax rate as a fraction, or, 1 + 0.2 = 1.2).

For VAT registered franchisees they would pay 10% of a £120 product = 10% of net price of £100 = £10 + VAT = £12. For non-VAT registered franchisees they would pay 8.33% of full price of £120 product = £10 + VAT = £12. So the amount paid in commission including VAT is the same - it's just the franchises pay different amounts because one has VAT setup on their payments and the other doesn't.

To confuse matters more it seems the non-vat registered franchisee is getting a better deal as the % is lower but actually it's not the case because the VAT registered business gets the VAT back (so pays £10 in effect) where as the non-vat registered business won't (so pays £12).

In the example above the product is £120 but if a franchisee isn't VAT registered and charges £100 they will go from paying £8.33 commission + VAT = £10 total, to a £120 sale = £10 commission + VAT = same cost to them as a business after registering as they reclaim the VAT in the later case.