Encinitas, CA asked in Business Formation, Business Law, Contracts and Employment Law for California

Q: (CA)What licenses, insurances, forms, do I need to have to hire/pay a 1099 sales rep for my consulting company?

I just started a consulting company where I will be selling custom selling systems, personalized training and coaching to small business owners and sales professionals. I want to be able to pay a sales rep commission every time they get someone enrolled with our services. They will be commission only, and I was told 1099 is ideal because I don't need to pay for benefits. Do I need a specific license, insurance, and what forms should I have drafted for them to sign to protect myself and them? What do they fill out to be legally considered contracted with me? I've never hired anyone so this is greatly appreciated. Thank you.

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3 Lawyer Answers
Answered
  • Dunsmuir, CA
  • Licensed in California

A: Licenses: you need one and if the sales people are really an independent contractors, each needs to have their own business license. This is possible for "outside sales" people, like real estate agents working for brokers or newspaper carriers.

Insurance: no one should run a business with liability and other insurance packages. You could be held liable when one of them kills an old lady in a wheel chair in a cross-walk crossing with the light, if your sellers had a bad driving record such as a DUI and you didn't check. Get an insurance BROKER and listen to the options for insurance.

Forms: you need an independent contractor agreement.

But there are big dangers in this. We have advised for decades on these issues. You better read the different criteria for independent contractors under state and also under federal law because you could STILL BE held liable as an employer. One way is by the government (or the facts) determining that these independent contractors are employees. Search under "independent contractor employee" and read up. If that happens to you, you will be crosswise with the IRS, the Franchise Tax Board and the Employment Development department (California)

When you read the criteria for determination be aware that California lists a different number than the IRS and that California will find that any 3 of 15 (or whatever) suffice to make that person an employee--which is what the government wants as the hearing outcome.

1099s are ok for issuing to businesses, but when you issue them to people who have a small business you better have their tax id # before you sign a check.

Theres A LOT MORE but this should get you off in the right direction.

Answered
  • Dunsmuir, CA
  • Licensed in California

A: Accidentally hit send before review: Here's a corrected version of the inititial answer:

Licenses: you need one and if the sales people are really independent contractors, each needs to have a business license of their own. This is possible for "outside sales" people, like real estate agents working for brokers or newspaper carriers. But you are entering into an area to make yourself a tax audit target.

Insurance: no one should run a business without liability and other insurance packages. For example, YOU could be held liable when one of them kills an old lady in a wheel chair in a cross-walk crossing with the light, if your seller had a bad driving record such as a DUI and you didn't check. Get an insurance BROKER and listen to the options for insurance.

Forms: you need an independent contractor agreement.

But there are big dangers in this. We have advised for decades on these issues. You better read the different criteria for independent contractors under state and also under federal law because you could STILL BE held liable as an employer. One way is by the government (or the facts) determining that these independent contractors are employees. Search under "independent contractor employee" and read up. If that happens to you, you will be crosswise with the IRS, the Franchise Tax Board and the Employment Development department (California). Each will spend $50,000 to make you pay $5,000.00 if you get my drift. Never pay yourself before them.

When you read the criteria for determination as to whether a person is really an employee, be aware that California lists a different number of tests than does the IRS and that California will find that any 3 of 15 (or whatever) will suffice to make that person an employee--which is what the government wants as the hearing outcome.

1099s are ok for issuing to businesses, but when you issue them to people who have a small business you better have their tax id # before you sign a check.

Theres A LOT MORE but this should get you off in the right direction.

1 user found this answer helpful

PREMIUM
Answered
  • Los Angeles, CA
  • Licensed in California

A: The business license for the ind'y contractor may not be necessary. A lawyer should review the proposed work to determine whether that person is actually an ind'y contractor, and a lawyer should draft the related agreements.

See: http://www.aeesq.com/business-law/employment-lawyer/

More details are necessary to provide a professional analysis of your issue. The best first step is an Initial Consultation with an Attorney. You can read more about me, my credentials, awards, honors, testimonials, and media appearances/ publications on my law practice website, www.AEesq.com. I practice law in CA, NY, MA, and DC in the following areas of law: Business & Contracts, Criminal Defense, Divorce & Child Custody, and Education Law. This answer does not constitute legal advice; make any predictions, guarantees, or warranties; or create any Attorney-Client relationship.

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