E. Sales Representatives

Sales representatives (most often called "reps," "agents," or "brokers") are persons or organizations that contract to sell the products of other organizations (called "principals" or "manufacturers"). A sales rep differs from a sales employee. A sales employee is considered an employee for all purposes; even if she is paid a commission, it is taxed at the source and a W-2 IRS form is issued at the end of the year. A sales rep, however, receives no benefits; the sole method of compensation is a commission with no taxes taken out of the payment.

Up until 16 years ago there were no federal or state laws to protect an independent salesperson. Now, more than 32 states have passed legislation ensuring the prompt payment of commissions after the working relationship ends. Some states even require written contracts that specify how commissions are earned, when they must be paid, and the penalties that ensue when these procedures are not followed.

No matter what industry you sell in, reps must be knowledgeable about the pitfalls of their business and how to protect themselves before, during, and after the relationship with a principal terminates.

The first step in reducing the chances of being exploited is to take the time to investigate the principal and the line you are considering representing. For example, it is a good idea to inquire about the principal's financial history and determine whether the firm has a low turnover of sales personnel, and that it rarely ships damaged goods (with low returns). If you are satisfied with the company's reputation, financial picture, and track record, you must then carefully negotiate the working arrangement. Too many reps begin working without clearly defining their contract, which often leads to future misunderstandings and disputes. The comprehensive checklist beginning on page 36 describes numerous items to request, including fall-back points, during the negotiation session, regardless of the industry you sell for.