TN 10 (08-11)

RS 02101.176 Agent or Commission Drivers


Section 210(j)(3)(A) of the Social Security Act; and
404.1005 and 404.1008(b) of Part 4, Title 20, of the Code of Federal Regulations;
Section 3121(d)(3) of the Internal Revenue Code

A. Definitions

1. Agent or commission driver

Agent or commission drivers are salespeople hired to drive trucks to sell and distribute beverages (other than milk), laundry, or dry-cleaning services, or any of the following products: bakery, fruits, meats, or vegetables. They may sell to consumers at retail prices or at wholesale to retailers. Their salary includes a commission based on their sales or the difference between the price they charge their customers and the amount they pay for the goods or services.

2. Statutory employee

A statutory employee is a worker who is not an employee under the usual common-law rules or a corporate officer, but he or she is subject to employment taxes. Section 3121(d) (3) of the Internal Revenue Code considers the following workers to be statutory employees: agent or commission drivers, full-time life insurance salespeople, home workers, and traveling or city salespeople.

B. Agent or commission drivers as employees

Agent or commission drivers are employees by statute (statutory employees) if they sell and distribute the products or services defined above and:

  • their work contract states they will do most of the work;

  • they have no substantial investment in the facilities used to do the work (except for tools, equipment, transportation, or clothing); and

  • they have an on-going work relationship with their employer.

Agent or commission drivers may maintain their status as statutory employees if they also distribute products or provide services that are incidental to the products defined in this section.

EXAMPLE: if the products sell for the same principal and all the services are within the occupational category. Assume the services are incidental if the time spent in handling the additional products or services is 20 percent or less of the time, the salesperson spends in handling all of the products or services. If the driver distributes for more than one principal, consider the services for each principal separately.

The following factors characterize the working relationship:

  • drivers collect money from customers to give to the company;

  • drivers cannot handle competing lines;

  • credit sales are not permitted;

  • many drivers receive paid vacations and sick benefits and are covered by workmen's compensation laws;

  • drivers may quit or the company may fire the driver on short notice;

  • drivers cannot have helpers or substitutes;

  • drivers report to the company office at specified times to load the truck, return unsold goods, and report on activities as requested;

  • drivers must follow leads;

  • some drivers are paid salaries in addition to commissions. Drivers may be compensated in any manner;

  • drivers are expected to solicit new customers and adjust complaints;

  • the company sets the prices;

  • drivers must keep reports of sales and other matters; and

  • drivers must cover assigned routes at regular intervals.

The drivers must distribute products to their regular customers, and to as many new customers as they can get. To accomplish this, the companies control the details of the drivers' work. The driver integrates his or her services, to a great degree, into the company's business. The contracts or agreements contemplate the rendering of personal services in a prescribed manner, for specified pay, and the employer and employee can terminate the contract on short notice. The drivers have no opportunity for profit, or risk of loss. Drivers may drive their own trucks or the company’s truck. They may solicit the customers they serve or serve the customers the company designates.

NOTE: Statutory employees are not self-employed because their employers must treat them as employees for Social Security coverage and taxation purposes.

C. Agent or commission drivers as independent contractors

Agent or commission drivers are independent contractors when:

  • their services are not closely integrated into the company's business;

  • they buy the products outright and stand to make a profit or suffer a loss, depending on the prices they charge and the manner they manage helpers, their expenses, and credit risks;

  • they use their own methods to distribute and sell, and their success depends on the amount of effort and ingenuity they apply;

  • they are not restricted against entering into similar arrangements with other companies. A typical arrangement is one where a truck owner buys a company's products at a discount price, and sells them at a profit to customers on the owner's route.

The features that represent an independent contractor are:

  • the driver pays truck maintenance costs and other business expenses;

  • the driver cannot return the unsold products to the company;

  • the driver may hire and pay helpers or substitutes;

  • the driver may work full time hours and select his or her work hours;

  • the driver does not contract to render personal services, but only to buy a certain amount of the company’s products regularly;

  • either party may terminate the relationship at any time; and

  • the driver may select the customers, set their prices, and sell the products or services on credit.

D. References

  • IRS Publication 15-A, Employer’s Supplemental Tax Guide

  • Social Security Handbook, Section 826 Certain Workers are Employees if the Common-Law Test is Not Met

  • Social Security Handbook, Section 827 Agent Drivers or Commission Drivers

  • RS 02101.300 Purpose of Test III

  • RS 02101.300 Specific Groups Covered

  • RS 02101.300 Who Is an Employee Under Test III

  • RS 02101.176 Agent Drivers or Commission Drivers

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RS 02101.176 - Agent or Commission Drivers - 08/19/2011
Batch run: 07/03/2014