This guide explains how draws work and is not legal advice. Wage and hour rules on draws, deductions and repayment differ by state; have employment counsel review any draw arrangement before you use it.
Apply it Recoverable draw calculator Month-by-month payout and deficit on a draw against commission.A draw against commission is a regular payment advanced to a salesperson and credited against the commission they earn later; a recoverable draw must be paid back from future commission, while a non-recoverable draw is a guaranteed minimum that is never repaid. Draws give reps — especially new hires — a predictable paycheck while their pipeline builds. To see month by month what a draw pays and what deficit it leaves, use the recoverable draw calculator.
What a draw is
New York’s labor department describes a draw as a payment credited, in whole or in part, against future commissions, typically working like an advance or guaranteed minimum that is settled at set intervals (NY DOL commissions FAQ). Federal wage-hour regulations describe draws, advances and guarantees as fixed periodic payments tied to time rather than to sales, usually smaller than the commission the employee is expected to earn (29 CFR 779.416).
In plan terms, the draw replaces or tops up commission in months when commission is low. It is not extra pay: over time, a rep on a recoverable draw is paid what their commission plan pays.
Recoverable vs non-recoverable draws
| Recoverable draw | Non-recoverable draw | |
|---|---|---|
| Monthly pay | The larger of the draw and commission net of any deficit | The larger of the draw and commission earned |
| When commission falls short | The gap becomes a deficit carried forward | The company absorbs the gap |
| Repaid? | Yes, from future commission | Never |
| Main use | Smoothing pay for experienced reps | Ramp for new hires, territory changes |
| Cost to the company | Timing only, unless the rep leaves with a deficit | The forgiven amounts |
A non-recoverable draw is effectively a temporary guarantee. A recoverable draw is effectively a loan against future commission.
How the deficit works
Take a $5,000 monthly draw and a rep who earns $2,000, $4,000 and $9,000 of commission in three months.
Recoverable draw:
- Month 1: commission $2,000, draw paid $5,000, deficit $3,000.
- Month 2: commission $4,000 minus the $3,000 deficit leaves $1,000; draw paid $5,000; deficit grows to $4,000.
- Month 3: commission $9,000 minus the $4,000 deficit leaves $5,000; the rep is paid $5,000 and the deficit is cleared.
Total paid: $15,000, exactly the commission earned. The draw changed the timing, not the amount.
Non-recoverable draw: the rep is paid $5,000, $5,000 and $9,000 — $19,000 in total. The company absorbed $4,000 of shortfall.
Check your own numbers, and a non-recoverable version side by side, in the recoverable draw calculator.
The plan should define three things about the deficit:
- Reconciliation frequency — monthly, quarterly, or at the end of the draw period. New York requires the frequency of reconciliation to be in the written agreement when a draw is recoverable (NY DOL).
- What happens when the draw ends — the deficit is forgiven, keeps being recovered from commission, or is capped.
- What happens if the rep leaves — see the risks below.
Using a draw during ramp
The most common use of a draw is a new hire’s ramp. A rep in month one has no pipeline and earns almost no commission; without a draw their pay would collapse to base salary or nothing.
Typical design choices:
- Non-recoverable during ramp so the new hire does not start with a debt that undermines morale.
- Decreasing draw — the draw steps down as the ramped quota steps up, so the guarantee shrinks as the rep becomes productive.
- Fixed end date — the draw stops at a set month regardless of performance.
The sales ramp calculator builds a ramped quota month by month and shows the cost of a ramp guarantee, which is the budget a non-recoverable draw consumes.
Risks and legal constraints
Repayment by departing employees
The most sensitive point. A recoverable draw assumes the deficit is repaid from future commission — but a rep who leaves has no future commission. New York’s labor department says a draw can only be reconciled against future commissions, cannot be recouped from earnings other than commissions, and that employees who leave cannot be required to repay this type of draw (NY DOL). Other states have their own rules; assume nothing.
Minimum wage and overtime
A draw does not remove minimum-wage obligations for non-exempt employees. New York’s labor department, for example, says that if draw plus commissions fall below the minimum wage for the pay period, the employer must make up the difference on the same payday (NY DOL). Recovering the deficit later must not push pay below what wage law requires for that later period either: federal rules count wages only when paid “free and clear” (29 CFR 531.35). For retail and service employers using the section 7(i) overtime exemption, the DOL says an employee paid entirely by draws and commissions meets the exemption’s commission condition (DOL Fact Sheet #20), but the other conditions still apply. Exemption status is a legal question; ask counsel.
Written terms
Several states require commission arrangements in writing. California requires contracts with commission pay to be written and to state how commissions are computed and paid (California DIR, AB 1396); New York requires the written agreement to cover drawing accounts and, for recoverable draws, the reconciliation frequency. Spell out the draw type, amount, reconciliation, end date and departure rule in the signed plan.
Plan-design risks
- Deficit spiral — a rep who falls behind accumulates a deficit they can never clear, earns nothing above the draw for months, and loses motivation. Cap the deficit or forgive it at the end of the period.
- Hidden salary — a draw that is never recovered and never exceeded is a salary in disguise; budget it as one.
- Clawbacks on top — a clawback on a deal already netted against a draw deepens the deficit. Our clawback policy guide covers how to sequence the two.
Key takeaways
- A draw advances pay against future commission; it changes the timing of pay, not the plan.
- Recoverable draws create a deficit repaid from later commission; non-recoverable draws are a forgiven floor.
- Define reconciliation frequency, end date and what happens to the deficit when the rep leaves — in writing.
- Draws are most useful during ramp, usually non-recoverable and decreasing over time.
- Repayment rules and wage-law limits vary by state; have counsel review the arrangement.
Frequently asked questions
Do I have to pay back a draw if I quit?
It depends on the type of draw, the written agreement and the state. A non-recoverable draw is never repaid. For a recoverable draw, some states sharply limit repayment by a departing employee: New York's labor department, for example, says departing employees cannot be required to repay a draw reconciled against future commissions. Check the plan and local law.
Is a draw the same as a base salary?
No. A base salary is paid regardless of results. A draw is an advance on, or a floor under, commission: it is credited against commission earned, and a recoverable draw is repaid from future commission.
How long should a draw last?
Draws are usually temporary — for a new hire's ramp, a territory change or a seasonal dip — and the plan should say when the draw ends and what happens to any remaining deficit at that point.
Sources
- New York State Department of Labor — Payment of Commissions FAQ
- U.S. DOL Wage and Hour Division — Fact Sheet #20, commissioned employees of retail establishments (section 7(i))
- 29 CFR 779.416 — Draws, advances and guarantees under section 7(i) (Cornell LII)
- 29 CFR 531.35 — "Free and clear" payment; "kick-backs" (Cornell LII)
- California DIR — Legislation effective January 1, 2011 (AB 1396, Labor Code 2751)