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### Recoverable Draw Scenario

The following scenario describes a recoverable draw.

Your company uses recoverable draws to compensate employees for the first six months of employment. The compensation for the new sales representative, Terry Smythe, might be similar to the amounts shown in Table 4.

Table 4.  Recoverable Draw Scenario
Month
Gross Earnings
Draw Eligible
Net Earnings
Draw Balance

1/02

\$2,750

\$2,000

\$2,750

\$750

2/02

\$3,000

\$2,000

\$3,000

\$1,000

3/02

\$1,500

\$2,000

\$2,000

-\$500

4/02

\$2,375

\$2,000

\$2,000

-\$125

5/02

\$3,000

\$2,000

\$2,875

\$875

6/02

\$2,750

\$2,000

\$2,750

\$750

In January, Smythe closes a lot of business and earns \$2,750 in commission, more than the draw amount. The company pays Smythe \$2,750 for the month. In February, he also brings in compensation in excess of the draw amount. However, in March, Smythe earns only \$1,500 in commission for the deals he closes. This is less than the draw amount, so the company pays \$1,500 plus an additional \$500 to bring Smythe's total compensation equal to the draw amount of \$2,000. The additional \$500 is seen as a loan and placed in balance for Smythe to pay back out of future commissions. In April, Smythe earns \$2,375 in commissions. However, he owes \$500 for the draw the company paid him last month.

Because Smythe earns more than the draw amount and he has a draw balance, \$375 is paid back to the draw. His net earning is \$2000. In May, Smythe closes business worth \$3,000 in commission. He pays off the draw balance of \$125 and receives net earnings statements representing \$2,875.