Can ISOs get into trouble simply by conducting sales meetings? They can if they require–instead of request–that independent agents participate.
Independent agents are often called 1099 workers because ISOs report the commissions those agents earn to the Internal Revenue Service on a Form 1099 for independent contractors.
Because independent agents do not work directly for the ISO, tax laws dictate that an ISO can make suggestions to them but cannot order them to take action. Requiring them to attend a sales meeting, for example, would violate their independent status, the laws say.
The tax laws provide greater latitude in directing the activities of salaried workers, who are sometimes called W-2 agents because ISOs report the income such agents earn on IRS Form W-2. Compelling them to attend a sales meeting would not violate tax laws.
Blurring the line between independent and salaried sales agents can result in serious repercussions, according to Adam Atlas, a lawyer at Montreal-based Adam Atlas Attorney at Law.
In fact, Atlas tells of an upstate New York ISO that found itself $400,000 in arrears for underpayment of taxes and penalties after tax officials rules the company’s agents were direct employees and not independents, Atlas says.
The ruling resulted because the agents were arriving at the ISO’s office at a set time, using desks and other office equipment there, abiding by company sales quotas and attending meetings at appointed times, Atlas says.
Independents, on the other hand, are free to set their own schedule and make their own decisions, he notes. He advises ISOs to avoid paying the costs of independent agents’ day-to-day activities, refrain from providing a laptop and shy away from paying a BlackBerry bill.
“The first criterion is control,” says Atlas. “To what extent does the ISO control the agent’s activities. Then there’s exclusivity–is this the agent’s only line of work?” Those situations expose the ISO to the interpretation that the agent is not independent, he says.
Having employees sign a contractor agreement and then treating them like employees will not escape the notice of state employment departments, Atlas warns.
He notes, however, that suggesting–not demanding–independent sales agents attend a sales meeting falls within the tax laws. And setting minimum quotas can form part an independent agent’s compensation package, he adds.
“You’re allowed to have standards,” he notes, “such as behaving politely and dressing appropriately. But you’re not allowed to say your coffee break can be no more than 10 minutes.”
Rules aside, convincing independent agents to attend sales meetings requires offering valuable meeting content, says Drew Freeman, president of Miami Beach, Fla.-based Merchant Data Systems Inc.
“If you put an apple pie in front of somebody they will probably eat it,” Freeman says. “If the meetings are worthwhile, they will come.”
(This article appears in longer form in the September-October 2011 print edtion of ISO&Agent.)
