TN 10 (08-11)
RS 02101.168 Outside Commissioned Salespeople
A. Introduction to outside commissioned salespeople
1. Job description
Outside commission salespeople
Work off the premises for which they sell under varied conditions.
Many sell directly to the consumer by canvassing door-to-door.
Some sell products at wholesale to retailers only, wholesalers, and distributors, while others sell only to specific establishments.
Some collect the money for the price of the article from the purchasers, retain their commissions, and forward the balance to their firms.
Some merely take orders, forward the orders to their firms, and receive their commissions periodically as they fill orders, and other representatives of the firms collect the money.
Others buy the merchandise directly from the companies and resell to the purchasers, or sell on a consignment basis.
Some sell only one type of merchandise and work principally for one firm, while others represent several firms and sell various merchandise.
Many do not engage in selling as their principal means of livelihood, while others devote all their working time and consider it a career.
B. Company control of outside commissioned salespeople
The amount of company control over its outside commission salespeople usually depends on company need of outside salesperson’s services to conduct business. A company that disposes of its products principally through outside commission salespeople employs greater control factors such as the right to:
terminate the salesperson’s services on short notice;
require the salesperson to report their daily activities;
set the order of the salesperson’s services;
have first call on the salesperson’s activities;
review and supervise the salesperson’s services.
C. Employment status of outside commissioned salespeople
Outside salespeople can be employees or independent contractors, depending on the circumstances. Much of it depends on control. The work conditions in this field vary, even for those salespeople who apparently are in the same category. There is no general rule to determine whether outside commissioned salespeople are employees. Consider Section 3508 of the Internal Revenue Code first. If the outside commission salesperson meets all elements of that test, you do not need to consider whether the salesperson is an employee. Certain conditions are common to most salespeople, such as:
the company fixing the sales prices and terms;
the furnishing of leads; and
requirements that the sales representatives investigate customers' complaints, collect delinquent accounts, and refrain from selling for competitors.
However, these conditions are not sufficient to establish an employment relationship. There must be more control factors for a salesperson to be an employee.
D. Control factors for outside commissioned salespeople
The principal factors that indicate control in these cases are:
must meet a minimum sales quota to keep the job;
must canvass certain areas at specific intervals;
must follow leads and report on daily activities and results;
has no business expenses, investments, or opportunity for profit or loss;
sets his or her work hours
pays the salesperson a regular amount at intervals;
does not require refunds when commissions earned are less than the amount advanced, or any type of pay arrangement which insures the worker a minimum income;
has the right to set the order of the services.
E. Common law test to determine whether a worker is an employee
One way to classify a worker as an employee or independent contractor is to use the common law test. The common law test asks two critical questions:
How independent is the employee?
How much control can be exercised over the worker?
A common law employee is described in Section 404.1007 of Regulations No. 4