When Hiring Salespeople, Which Way Will You Go? Independent Contractors or Employees.
Some companies hire salespeople as employees, while others have commission-only independent contractors. Some have a combination of both. When you’re making that decision for your company, it’s important to consider the legal issues involved with both scenarios. First, a small disclaimer – I am not an authority on the legalities of hiring and firing employees. The information I provide is a jumping off point, and can serve as a basis for conversations with an attorney or someone who specializes in employee law. Your HR department or person (if applicable) can assist you with developing your hiring strategy and understanding the legal requirements of hiring 
salespeople. Essentially, your legal liability as an employer and as a manager involves three elements:
- Understand who will be treated as an employee.
- Know your obligation under the Federal Employment Act.
- Know your obligation under state law.
For example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works six days a week, and is on duty in Bob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales, and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue. The IRS defines an independent contractor as: “People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.” The key phrase here is: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” I’ve see companies get in trouble with this. If you’re going to hire salespeople as independent contractors, you must develop an agreement or contract that spells out the working relationship. So, which is the better way to go? The short answer is it depends on the position of your organization. Hiring salespeople as independent contractors often are the less expensive option, since you don’t have to pay for benefits and other employee-related costs. However, if your company has the resources, I suggest hiring salespeople as employees. When hiring salespeople as employees, you’ll have control over what will be accomplished and how it will be done. This gives you more control over your sales process and the quality of salesperson you attract. It also means stability for your client base due to reduced turnover. An employee is more likely to be loyal salesperson invested in the well-being of your company.
Related podcast:
SMW 004 Sales Recruiting – Hire The Right Sales Person Part One SMW 005 Sales Recruiting – Hire The Right Sales Person Part Two
Related Articles:
Has Your Sales Planning Allowed You to Build Your Sales Team for Success? Hiring Sales People? Know What You Are Looking For Creating a Sales Job Description That Fits Your Needs
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