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COMPENSATION AGREEMENT

THIS COMPENSATION AGREEMENT (this "Agreement") dated this ________ day of ________________, ________

BETWEEN:

______________________________ of ______________________________________
(the "Employer")

OF THE FIRST PART

- AND -

______________________________ of ______________________________________
(the "Employee")

OF THE SECOND PART

BACKGROUND:

  1. The Employer and the Employee entered into an employment agreement (the "Employment Agreement") dated November 21, 2024, as amended.
  2. This Agreement does not replace the Employment Agreement but is a temporary supplement to it.

IN CONSIDERATION OF and as a condition of the parties entering into this Agreement and other valuable consideration, the receipt and sufficiency of which consideration is acknowledged, the parties to this Agreement agree as follows:

  1. The terms of the Employment Agreement, as amended, are amended by this Agreement.
  2. The Employee will receive an hourly wage of $_____________________________.
  3. The Employee's compensation will be payable twice per month while this Agreement is in force. The Employer may deduct from the Employee's compensation any deductions or remittances required by law.
  4. This Agreement is effective from November 21, 2024 until November 21, 2024.
  5. The terms of the Employment Agreement apply to this Agreement, except where the context requires otherwise.
  6. This Agreement takes precedence over the Employment Agreement unless a new employment agreement or similar agreement is later created.
  7. On the termination or expiry of this Agreement, the Employee's compensation will be set according to the employer's policies and procedures.
  8. Miscellaneous Terms
  9. The Employer and the Employee acknowledge that this Agreement is reasonable, valid and enforceable. However, if a court of competent jurisdiction finds any of the provisions of this Agreement to be too broad to be enforceable, it is the parties' intent that such provision be reduced in scope by the court only to the extent deemed necessary by that court to render the provision reasonable and enforceable.
  10. In the event that any of the provisions of this Agreement will be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions will continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement and the remaining provisions had been executed by both parties subsequent to the removal of the invalid provision.
  11. All negotiations and understandings have been included in this Agreement. Statements or representations which may have been made by any party to this Agreement in the negotiation stages of this Agreement may in some way be inconsistent with this final agreement. All such statements are unenforceable. Only the written terms of this Agreement will bind the parties.
  12. Any amendment or modification of this Agreement or additional obligation assumed by either party in connection with this Agreement will only be binding if evidenced in writing signed by each party or an authorized representative of each party.
  13. Time is of the essence in this Agreement.

IN WITNESS WHEREOF, the parties have duly affixed their signatures under hand and seal on this ________ day of ________________, ________

EMPLOYER:

_________________________ (Print)

Per:______________________(SEAL)



EMPLOYEE:

______________________________

_________________________ (Print)

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Last updated February 2, 2024

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Kyle Adam
Kyle Adam, BComm
Kyle Adam

Kyle Adam is a seasoned content creator, editor, and SEO specialist with over four years of experience. Presently, he serves as Senior Marketing Writer and Editor at LawDepot. Holding a...

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Ngaire King
Ngaire King, BA, JD
Ngaire King

Ngaire King is Legal Counsel for LawDepot. Ngaire has been working in the legal field for over five years and was called to the bar in Alberta in 2020. Before becoming a lawyer, Ngaire ...

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Rebecca Koehn, BSc, MFA
Rebecca Koehn

Rebecca Koehn has been working in content creation and editing for over ten years and search engine optimization for over five years. Koehn is the Content Marketing Manager for LawDepot...

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What is a Compensation Agreement?

A Compensation Agreement is a contract between an employer and an employee that records a change in the employee’s wage or earning potential. It’s an essential document for managing and retaining employees.

It can outline simple or complex compensation changes to an employee’s hourly wage or yearly salary. If an employee works on commission, you can outline changes to their commission formula too.

A Compensation Agreement acts as a supplemental form to an Employment Contract, in that it does not replace it. Instead, a Compensation Agreement only changes the details regarding employee compensation.

A Compensation Agreement may also be known as a:

  • Employee raise agreement
  • Pay raise agreement

What is the purpose of a Compensation Agreement?

A Compensation Agreement ensures that both the employer and the employee are clear about the compensation terms.

Despite there being no legal requirement to put them in writing, Compensation Agreements are the best way to create a record of the agreed-upon payment changes and protect the interests of both parties.

Simply put, verbal agreements do not suffice when changing compensation terms. Relying on a purely verbal agreement should be avoided because it’s difficult—if not impossible—to prove its exact terms. If a dispute arises and an employer and employee don’t have a Compensation Agreement, they could recall the new terms differently and have trouble resolving the conflict.

Instead, written Compensation Agreements provide a record of the payment terms so that either party can use it as legal protection in case of a dispute or lawsuit.

What’s included in a Compensation Agreement?

A Compensation Agreement should include specific terms 

  • Date of the original Employment Contract
  • Employer name and address
  • Employee name and address
  • New compensation information
  • Start and end dates

When outlining the new compensation details, specify how you will pay an employee (hourly wage, yearly salary, commission, etc.), as well as the rate and frequency of payment. You must abide by your province or territory’s minimum wage rate. 

Also, you may use a Compensation Agreement to make changes to an employee’s overtime payment and vacation time.

Our Compensation Agreement template requires you to provide a start and end date for the compensation change. If you want to make a long-lasting change to an employee’s compensation, simply provide a far-away end date.

Alternatively, you may use an Amending Agreement to record an employee’s permanent compensation change.

What’s the difference between a Compensation Agreement and an Employment Contract?

Although related, a Compensation Agreement is quite different from an Employment Contract.

After an employer has offered someone a job, they create an Employment Contract to outline the employment terms, such as the recruit's job title, responsibilities, and hours, as well as details about the initial compensation an employee receives when they begin their employment.

A Compensation Agreement is usually introduced at some point during the employment term, such as after a probationary period or annual review, to outline any changes in wage, salary, or commission. The agreement simply records the employee's updated compensation terms.

As stated previously, a Compensation Agreement is a supplemental form to an Employment Contract and does not replace the entire thing.

When to use a Compensation Agreement

Use a Compensation Agreement when:

  1. Promoting an employee: When you offer an existing employee a promotion, a Compensation Agreement may be necessary to outline a wage or salary that is suitable for their new position.
  2. Giving an employee a raise: After evaluating an employee, you may increase their compensation to retain them. Using a Compensation Agreement is the easiest way to record a compensation change.
  3. Changing commission formula: When a salesperson or agent works on commission, a Compensation Agreement may be used to outline the percentage of commission earned for each sale, how often commissions are paid, and other details.

Related documents

  • Employment Contract: Outline employment terms for employees, including their job title and responsibilities, compensation, hours, and more.
  • Employee Evaluation Form: Review an employee’s performance and set fair and clear expectations in the workplace.
  • Job Offer Letter: Offer someone employment and outline a brief summary of the key terms and conditions of a job position.
  • Amending Agreement: Make minor changes to a contract’s terms instead of having to create a new one.
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