What Is a Residual Payment?

Close-up of check booklet
Close-up of check booklet (Image: Vladimir Ivanov/iStock/Getty Images)

Residual payments increase the earning potential of people employed in certain industries, businesses and occupations. In addition to the entertainment, publishing and insurance industries, which commonly include residual payments in compensation packages, residual payments also apply to outside sales staff in a variety of businesses.

What It Is

A residual payment refers to passive income received for past sales or achievements. For example, insurance agents typically receive an initial commission for making a sale, and ongoing residual payments as long as a customer continues to satisfy monthly premium requirements. In the same way, writers typically receive compensation upfront as well as residual payments for as long as customers continue purchasing their books.

How It Works

Residual payments vary according to whether customers continue to pay for a service or purchase additional products. The amount, most often a percentage of monthly, semi-annual or annual sales revenue, must meet certain requirements. For a writer, this often means sales that exceed a predetermined base amount. For an actor, residual payments apply when a taped performance is used again or in a way different from its original intent.

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