Can We Make Our Salespeople Independent Contractors?
Question: Under the federal labor laws, can we have our sales position be an independent contractor? The individual we have in mind would form his own company to handle our sales leads. He would provide his own car and have his own insurance. Our goal is for the company to be relieved of any liability regarding the individual’s driving, as his record is not the best.
Answer: The IRS and the U.S. Department of Labor are skeptical about independent contractor arrangements, especially when the contractor is performing a function that is integral to the business of the company engaging the contractor—such as handling sales leads for the company. Much more can be said about independent contractor status but the government is afraid the company is trying to evade paying benefits and paying the employer share of social security, or that the contractor wants an arrangement that doesn’t involve deducting taxes from his compensation. Of course, in this case, the motivation is the sales person’s poor driving record. But here’s the kicker—even if we deem this individual an independent contractor, if he has an accident while performing services for the company, it’s nearly inevitable that if there is litigation, the company will get dragged into it regardless of whether the sales person is an employee or a contractor. So if the goal is to avoid any liability for the sales person’s driving habits, making him an independent contractor won’t solve the problem. However, the company may be able to require that the sales person make his insurance primary in the event of an accident while at work. To be on the safe side, the company should run that idea past its insurance agent or broker.
This response is intended for general informational purposes only and should not be construed as legal advice or a legal opinion, nor is this column a substitute for formal legal assistance. For help with particular legal needs, members are invited to consult with Brooke Duncan III of Adams and Reese LLP. Mr. Duncan can be reached at 504-585-0220 or by email at email@example.com.
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