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Controlling Independent Contractors

It's tempting to have independent sales people so that you don't have to pay benefits, but members of the ISP-Marketing list warn that they have to be truly independent or else there are tax consequences.

[November 12, 2001]

On the ISP-Marketing list in October, AG inquired,

"Has anyone tried using independent contractor sales people? Any issues regarding the tax implications of working with employees versus independent contractors?"

A number of respondents noted that it's crucial to be sure you're abiding by the tax laws:

[GG explained] "If the person works in the company office, using equipment provided by the company, and can't determine his own work projects, then that person is an employee. If, however, the person works from his own home or office, using his own equipment, and has several different companies that provide him compensation, then he is an independent contractor."

[PP advised] "So long as they sign an Independent Contractor Agreement indicating they understand that they are responsible for paying their own taxes, and you do not supervise, manage, or dictate when or where your contractors will work, and you do not provide equipment or supplies for your contractors, then you should be compliant with the tax code. Still, you should consult with a tax attorney to confirm that."

[BS added] "The IRS has a nifty free CD that they will send you, The Small Business Resource Guide, which provides detailed guidelines on independent contractors and a whole lot more. To learn what you can get away with from an employer's point of view, you might also consider networking with the owner of a business that uses them."

[WC observed] "There is also a special provision in the Internal Revenue Code that covers sales people as independent sales reps, as opposed to regular independent contractors. The regulations are actually a little easier on these kinds of people (you can exercise a little more control) but you do need to follow the rules carefully."

Others suggested that when dealing with sales reps in particular, it's worth it to make them employees:

[MS warned] "You'll have next to zero control over your reps, which not only makes it impossible to hold successful and frequent sales meetings, you'll have little control over how many cold calls they make a day, and when it comes to getting on them about poor performance, you'll have to talk to them more like vendors than hired sales reps. Ultimately, this is not a sales force, it's a network of consultants. You won't succeed going this route. The only way you will ever have a sales force that is truly productive and profitable is to hire them full time, manage them full time, train them full time, and coach them full time."

[JB agreed] "If you are looking to retain capital and make sure your sales reps have an incentive to sell, you may want to explore the idea of a draw against commission. This would give your sales reps an income, make them employees, and give them enough incentive to perform. Check out this website on selling. It's been a great resource for these issues in the past."

[BS added] "You don't get the same level of loyalty from an independent contractor as you do from an employee. Having worked as a sales manager for a number of companies, I can tell you that we spent a lot less time recruiting and training replacements when the sales reps were guaranteed a paycheck."

— End

Related articles:
	[Aug. 23, 2001]	Rewarding Your Fans
	[Aug. 6, 2001]	Employees Without Salary
	[Sept. 20, 1999]	ISP Sales Commissions

Online resource:
	ISP-Planet Guide Chapter 6: How to Manage Your Sales Team