REPLACEMENT CONTRACTOR columnist Dave Yoho, on salespeople as employees vs. independent contractors.

To the Editor:

I received several phone calls and e-mails regarding my quoted remarks in “Steady Job,” a feature article in the July/August issue, pp. 52–56, about the employee vs. independent contractor status of salespeople in this industry.

I wanted to take the opportunity to answer those questions and clarify some issues raised by the article.

The article reads: “Contractors who hire full-time salespeople say loyalty and teamwork balance out the extra costs in taxes and benefits.”

This implies that certain salespeople treated as independent contractors are not full-time employees. That's not the case. In fact, independent status for salespeople may have two separate and different connotations:

  • 1) If you hire a salesperson as an independent contractor, you're required to adhere to the IRS' “20 safe-haven” rules. (To find out what they are, call the IRS and ask for a copy of form SS-8.)
  • 2) The 3508 provision of the IRS code enables employers to hire a salesperson and allows that salesperson to be subject to all forms of direction and supervision, in all instances being treated as an employee, except for tax purposes.

Nowhere in the data we provide are 3508 employees considered in any status dissimilar to a regular employee except that, in accordance with IRS rules, they receive a 1099-EST instead of a W-2. In most sophisticated sales organizations, the use of the 3508 provision is augmented by ensuring that the 3508 employee has access to a health insurance program, which the employee pays for, and is considered to be reimbursed by the acceleration of the commission they receive, i.e., an adjustment of 1% to 1.5%. In addition, companies will offer a training program under 3508 and give the employed salesperson an option to convert to regular employee classification with a slightly reduced commission rate (again, 1% to 1.5%).

To imply that those employed under a 3508 provision are considered less nurtured, supported, or motivated may be a personal judgment of uninformed contractors.

Many major companies in this industry operate as 3508 employers. The inclusion of the 3508 provision in the IRS code was lobbied for by the Direct Sellers Association representing major employers of in-home salespeople, such as Tupperware, Mary Kay, Cutco, and Bible sales organizations. Thanks to the work of attorney Joseph Lyman, the home improvement industry is included under the provision.

The first phone call I received took direct exception to the statement made by another quoted source in that article: “It depends on what kind of nurturing environment the seller wants” (p. 54). This client has run a pro forma on the benefits to his salespeople, which includes cash flow and total net return, and 3508 wins hands-down.

—Dave Yoho is president of Dave Yoho Associates and a REPLACEMENT CONTRACTOR columnist; www.daveyoho.com.