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Short answer
A commission structure is the rule that turns sales into pay for a sales representative: straight commission (pay only from sales), salary plus commission, tiered commission (the rate changes as sales cross set levels) and residual commission (ongoing pay on recurring revenue from existing accounts). In medical supply sales, which structure is used matters less to federal law than who is being paid (an employee or an independent agent) and whether the pay formula is fixed in writing and independent of referrals. This page is general information, not legal advice.
What is meant by “commission structures”?
The term describes how a seller compensates the people who sell for it. Four plain-language types cover most of what buyers and suppliers will meet. These are generic compensation terms used across industries, not terms defined by a federal health-care rule.
Straight commission
The representative has no base pay. Earnings are the commission rate applied to sales, so pay is zero in a period with no sales.
Salary plus commission
A fixed base is paid regardless of sales, with commission added on top. A related feature is a draw: an advance against commissions that the representative may or may not have to repay depending on the plan.
Tiered commission
The rate changes when sales pass set thresholds, for example a higher rate on sales above a target. Tiers can be layered on either of the structures above.
Residual (recurring) commission
The representative keeps earning a commission for as long as an account keeps buying, rather than only on the first sale.
How the structure is used in practice for medical supplies
The structure is only the formula. Federal health-care law looks first at the relationship behind it. Two relationships recur in supply sales: a manufacturer or distributor employs the representative, or it contracts with an independent agent. For the contract-versus-employee question and the day-to-day terms, see the guides on medical device sales commission, the medical sales representative agreement and 1099 medical sales representatives. This page does not repeat them; it maps each relationship to the federal check that applies.
Which federal rules touch each relationship
Primary sources, checked 2026-11-03: 42 CFR 1001.952 (anti-kickback safe harbors), 29 U.S.C. 207 and OIG Advisory Opinion 98-10. Safe harbors protect arrangements that precisely meet every condition and might otherwise technically violate the anti-kickback statute; they concern items and services payable by Medicare, Medicaid or other federal health care programs.
| Who is paid | Federal check that applies | Source |
|---|---|---|
| Employee, any structure (straight, salary plus commission, tiered) | The employee safe harbor covers any amount an employer pays an employee who has a bona fide employment relationship, for employment in furnishing items or services payable by federal programs. | 42 CFR 1001.952(i) |
| Independent agent, any structure including residual | The agent safe harbor requires a signed written agreement covering all services, a term of at least one year, and a compensation methodology that is set in advance, consistent with fair market value in arm’s-length transactions, and not determined in a way that takes into account the volume or value of referrals or business otherwise generated between the parties that federal programs may pay for. | 42 CFR 1001.952(d)(1) |
| Independent agent paid a percentage of sales | OIG lists “compensation based on percentage of sales” among characteristics associated with increased scrutiny, alongside direct billing of a federal program by the seller, contact with physicians or beneficiaries, and marketing separately reimbursable items. | OIG AO 98-10 |
| Commissioned employee in a retail or service establishment (overtime) | Overtime exemption where the regular rate exceeds one and one-half times the applicable minimum hourly rate and more than half of compensation over a representative period of at least one month is commissions. Earnings under a bona fide commission rate count as commissions even if they exceed a draw or guarantee. | 29 U.S.C. 207(i) |
One arrangement, read carefully: Advisory Opinion 98-10
In 1998 OIG reviewed a manufacturer of disposable medical supplies paying an independent sales agent a monthly commission of 1% to 1.25% of invoiced amounts, with the percentage set in advance for each purchaser and certified by the agent as fair market value. OIG said the arrangement could constitute prohibited remuneration if the requisite intent to induce referrals were present, but that it would not impose sanctions on the facts presented. Its reasoning leaned on features of that case: the products were not generally separately reimbursed to hospitals, the agent dealt with centralized purchasing departments rather than physicians or patients, and the agent had no other financial arrangement with the manufacturer or the purchasers. The opinion states it applies only to the requestor, so it shows how OIG reasoned and is not a norm for other suppliers.
A question checklist for buyers about a supplier’s sales pay
- Is the representative an employee of the supplier or an independent agent? The federal check differs (row 1 versus rows 2 and 3 above).
- If an agent, is the agreement in writing, does it state the services and term, and is the pay formula fixed in advance rather than adjusted case by case?
- Does the commission depend on referrals or on business generated between the parties for items federal programs may pay for, or only on the supplier’s own sales?
- Does the supplier bill a federal program directly for what the representative sells, or does the representative deal with clinicians who order for patients? Both are listed as scrutiny factors in AO 98-10.
- For employed representatives paid mostly by commission, has the employer checked the overtime test in 29 U.S.C. 207(i)?
These are questions to put to the supplier’s compliance contact, not conclusions. Related reading: referral fees for medical supplies and fee splitting in medical practice; the incentive effect itself is defined under perverse incentives.
Common misunderstandings
- “A percentage of sales is illegal.” Neither the safe harbor text nor AO 98-10 treats it as automatically unlawful. OIG treats it as a risk factor, and in AO 98-10 declined to sanction one on its facts.
- “Calling someone a contractor changes the rules.” The employee safe harbor depends on a bona fide employment relationship; a label does not create one, and the agent safe harbor has its own written-agreement and fixed-formula conditions.
- “Missing a safe harbor means a violation.” Safe harbors protect arrangements that meet every condition. The statute turns on intent to induce referrals, as AO 98-10 itself notes.
- “A draw counts against the commission share.” For the 207(i) test, earnings under a bona fide commission rate are counted as commissions even above the draw or guarantee.
FAQ
What is meant by “commission structures”?
The ways a seller converts sales into pay for its representatives: straight commission, salary plus commission, tiered rates and residual commission on recurring accounts.
How does it apply to medical supply buyers and sellers?
Sellers must fit the pay of employees and independent agents within the federal checks above when federal health care programs pay for what is sold. Buyers can ask whether a representative is an employee or an agent and whether pay follows a fixed written formula.
What are common examples and common mistakes?
Examples are a commission-only agent paid a fixed percentage of a purchaser’s invoiced sales, or an employee with a base salary plus commission. Common mistakes are treating the structure as the legal question, assuming a percentage is automatically unlawful or automatically safe, and relying on AO 98-10 as if it covered other arrangements.
Sources
- 42 CFR 1001.952(d) and (i), Legal Information Institute, https://www.law.cornell.edu/cfr/text/42/1001.952 (checked 2026-11-03).
- 29 U.S.C. 207(i), Legal Information Institute, https://www.law.cornell.edu/uscode/text/29/207 (checked 2026-11-03).
- HHS Office of Inspector General, Advisory Opinion 98-10 (issued August 31, 1998), https://oig.hhs.gov/compliance/advisory-opinions/98-10/ (full text: https://oig.hhs.gov/documents/advisory-opinions/385/AO-98-10.pdf) (checked 2026-11-03).
