The two structures
Take 30% up to $50,000 and 32% above it, on a month where you collect $70,000.
Marginal, like tax brackets
Each band is paid on its own dollars.
30% of $50,000 = $15,000. 32% of the $20,000 above = $6,400. Total $21,400.
Retroactive, the whole month re-rates
Crossing the threshold applies the higher rate to everything.
32% of $70,000 = $22,400.
A thousand dollars, on one month, from the same contract and the same production.
The language that tells you which
Retroactive:
- "on all collections"
- "retroactive to the first dollar"
- "the applicable rate shall apply to the entire month"
Marginal:
- "on collections in excess of"
- "each band", "each increment", "each bracket"
- "amounts above $X shall be compensated at"
Neither is unfair. But it changes what the tier is worth, and therefore what you should push on when you negotiate.
What to negotiate, depending on which you have
On a retroactive tier, the threshold is everything. Crossing it is worth a jump on the entire month, so moving the threshold down by $5,000 can be worth more than moving the rate up by a point. It also creates a real cliff: a month that lands just under is meaningfully worse than one that lands just over, which is worth knowing when you are deciding whether to take a Friday.
On a marginal tier, the rate above the threshold is what matters, because the threshold only affects the dollars above it.
The other questions
- Does the tier reset monthly, quarterly or annually? An annual tier on a big producer is worth far more than a monthly one, because a strong month does not get stranded.
- Is the tier measured on the same basis as your pay? Occasionally a contract tiers on production and pays on collections. Check.
- Does lab come off before the tier is measured? If lab is deducted first, a lab-heavy month can drop you below a threshold you would otherwise have crossed.
That last one catches people out. It is also the kind of thing you only spot if you can see, month by month, what you produced, what came off, and which side of the line you landed on.