By: Judge Ruth B. Kraft, Esq.
Correctly classifying whether a salesmen is an employee or an independent contractor does not have a simple answer. In order to determine how to classify a particular individual rendering services on behalf of your business we look to the details of the relationship. Some salespersons are really middlemen operating their own businesses whereas others are clearly employees. Factors to consider are whether samples are the property of the employer, who sets the territory, whether the salesperson can sell for competitors, mandatory reports or meetings, expense reimbursement, etc. The cases are extremely fact driven. "Outside" salespersons could be either employees or independent contractors, depending on the circumstances. However, in virtually all instances, "Inside" salesmen, who work in an employer's premises, would be considered employees and the employer would be responsible for withholding and for employment taxes.
A common issue with employers is the tendency to pay “inside” salesmen based on commission. This is problematic because it will give rise to a wage & hour violation. Anyone who works on your premises should be paid a wage and there is a prevailing wage for each occupation based on US Dept of Labor data. Commissions can be adjusted accordingly to balance for this expense. While an employer is not legally required to provide benefits such as paid vacation or health insurance, if it currently does so, it must evaluate the economics of expanding the base of covered workers to include salespersons.
Classification of an individual should be dealt with at the inception of the working relationship, and failing to do so may give rise to potential issues for the employer and individual rendering services.
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