Independent sales rep agreements outline the specifics of the employer's and sales representative's duties and responsibilities. In addition, the agreement makes clear that the representative is an independent contractor and not a direct employee.
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Representative vs. Employee
Independent sales reps are not direct employees and sales rep agreements address the ramifications of that in detail. A key difference between employees and sales reps is in the area of taxes. Reps are 1099 employees and are responsible for their own taxes. The employer does not deduct or contribute toward employment taxes.
Employee benefits create another distinction between direct employees and independent representatives and are detailed in the signed agreement. Benefits such as vacation time, pension plans and insurance tend to signify employee status.
The IRS looks critically at the factors that differentiate employees and independent contractors. Prior to entering into a signed agreement, it is important for both the sales rep and the employer to have a full understanding of these guidelines and the tax implications.
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