HR Q and A: Are Sales Reps 1099 Contractors?

Question from a Business Coach, about how to classify new Sales Reps:

I want to create some Sales Rep roles. My initial thought was I’d issue them a check or gift card for 5% of the fee I charge for any service they “sell”. So, I’d provide a handful of sales reps with information sheets, some promotional information, etc.

I was curious from a legal/accounting perspective what I need to be mindful of. I already have an employee as a 1099. Is it a similar situation?


Our answer about the difference between employees and 1099 contractors:

Good questions… You can make them Contractors in that they get a 1099 versus a W2 (technically, there’s no such thing as a 1099 employee), but they/the role needs to meet the requirements of being a contactor rather than an employee. You can have a commission structure however you want, but it is about their employee status. Here is link to the IRS that outlines what it means to be a contractor versus an employee. Basically, it comes down to how much control you have over the person in the role, what they do and how they do it. Think of contractors/1099s like someone you hire to clean your home or repair your computer.

With that, if these Reps do qualify as Contractors, you will need to make sure you have a contractor’s agreement that is detailed and outlines expectations, and the agreed upon payment percentage. If they do not qualify as contractors and are employees, you will need to make sure that they get paid appropriately within the State and Federal Wage and Hour guidelines. If they are going to be paid commission only, they need to be sure to truly qualify as Outside Sales to not be subject to minimum wage requirements.


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