In an age in which businesses rely on agility and adaptation, many companies are turning to independent contractors to fill their field sales roles. This is especially true for small businesses, which can stretch their operating budgets by relying on contract employees rather than full-time staff members.
According to the 2021 Field Sales Benchmark Report, 70% of businesses with fewer than 10 employees use contractors for their outside sales, as compared to 20% of businesses with 10 to 100 employees. When businesses are smaller, they’re more likely to rely on independent contractors.
But which is better for your business? In this article, we’ll take a closer look at the pros and cons of independent sales contractors vs. full-time employees. We’ll also provide a quick template you can use to create a 1099 sales rep agreement.
The Advantages of Full-Time Employees
Historically, sales representatives have been full-time employees, offering companies advantages that include:
A Conventional Recruitment Process
Granted, nothing about the job world is “conventional” these days, but many job seekers remain committed to finding a full-time job that offers a comprehensive benefits package. These benefits are rarely offered to contract employees, which may make a full-time position more attractive.
In other words, many job-seekers may prefer the “conventional” approach of being a full-time employee, and your business may capitalize this to streamline the recruitment process and attract new talent.
By definition, independent contractors exist in relative autonomy, having the freedom to decide for themselves how to accomplish their given task.
With a full-time employee, managers have the right to dictate what an employee does and how they do it. This approach makes sense when you need staff to oversee a particular project or you need to provide specialized training to sales reps before they enter the field.
Full-time employees can be expected to adhere to company-wide reporting processes. This can go a long way toward improving sales performance, since this standardized sales data provides regular, accurate feedback about your overall performance.
Centralized Reporting Process
The sales process requires the collection of a lot of data. Sales team members are typically responsible for tracking activities such as:
· Sales calls or visits
· Recording notes about a sales call/visit
· Updating customer contact information
· Updating customer preferences
This type of reporting can be enormously helpful, as the more you learn about a company the better you can meet their needs. For instance, if you know when a company does their budget planning, you can time your sales visits more strategically and gain more traction.
Independent contractors may have their own method for collecting this data, but full-time employees can be expected to adhere to company-wide standards and practices. Many companies have a centralized system to track sales activity, and it’s easy for full-time workers to learn and utilize this system throughout their careers.
Building a sales staff of full-time employees can lead to a strong, synchronized team. By standardizing your business processes, sales team members can help one another by offering guidance at every stage of the sales funnel.
The Disadvantages of Hiring Full-Time Staff
Despite the ample benefits of full-time employees, there are some very real drawbacks, which include:
Full-time employees cost money. Hiring a full-time employee will demand that your business pay a yearly salary, benefits, as well as the fees associated with full-time workers, including:
● Your share of the employee’s Social Security and Medicare taxes
● State unemployment insurance
● Workers’ compensation insurance
These fees can really add up, totaling 20% to 30% of your company’s payroll. These financial demands may be cost-prohibitive for small business owners or startups — but this can even be true for larger companies that want to find ways to cut costs by reducing their dependence on full-time employees.
Companies that hire a full-time sales rep will often have to invest time in that new hire to bring them “up to speed” with regard to company policies or the products and services they’re expected to sell. This can cost your business valuable time, not to mention the financial investment that comes from the resources and personnel that are necessary to provide training.
Most businesses hire full-time employees because they expect individuals to remain with the company long-term. This is great if the employee fits into your overall work culture, but sometimes, business owners can find themselves “stuck” with a bad fit due to poor job performance or personality conflicts within staff teams.
Terminating a full-time employee is rarely an easy process, and it’s never desirable for employers or employees. Contract employees, on the other hand, are a bit easier to handle. If a sales contractor doesn’t work out, you can simply choose not to work with them again after the contract is fulfilled.
The Advantages of Hiring a 1099 Salesperson
Independent sales contractors are outside employees who are charged with completing a particular job, usually within a specified time frame. As you’ll see, many of the pros and cons of hiring an independent contractor are essentially the reverse of hiring a full-time employee.
But hiring a sales contractor can have many distinct advantages for your company. What can you expect when you hire an independent salesperson?
It bears repeating that cost is one of the primary reasons that business opt for 1099 employees over full-time workers. Independent sales reps aren’t entitled to the same salary and benefits as a full-time employee would be, nor would a business be obligated to pay the payroll tax on their contract workers. Outsourcing your sales needs to an independent sales contractor can be a major strategy for cutting overall business costs.
Independent contractors may not require the same level of training as a full-time employee, which saves you from having to invest time or resources into an extensive training program.
Despite the assumption that independent contractors tend to be transient — coming and going based on their contracts — this is not the case. According to the Field Sales Benchmark Report, contract workers will often remain at a company for 4.8 years, which is more than double the tenure of full-time workers, who only tend to remain at a company for two years.
Flexible Staffing Options
Even if your full-time employees boast of a diverse skill set, they can never provide the versatility that comes from hiring a contract worker for a particular season or a specific project. This can be ideal for business owners who face fluctuating workloads or whose business cycles may rely on seasonal sales.
Specialized Skills and Experience
You may discover that some independent contractors bring specialized experience or expertise to the job. After all, data from the 2021 Field Sales Benchmark Report reveals that the average independent contractor has 15 years of experience.
It makes sense for business owners to leverage the experience that a sales rep gained at another company and use it to their own advantage.
Increased Geographic Coverage
Full-time employees will usually represent a relatively localized geographic region—usually represented by their commuting distance. This generally limits their area of coverage, even if they commit to overnight sales trips.
Businesses can rely on a wider network of independent contractors, whose geographic distribution can vastly increase your company’s coverage. Conceivably, a company could contract with sales reps from around the globe to promote their brand in a variety of geographic settings and business climates.
The Disadvantages of a Sales Independent Contractor
Hiring a 1099 salesperson isn’t without its challenges. Before you rush to change your hiring process, there are a few disadvantages to independent sales contractors that you should consider:
Less Control Over Employees
An independent sales contractor is bound only by the terms of the sales contractor agreement. This usually means that the contractor is free to accomplish their assigned task at their discretion, using their own methods.
This can be problematic for employers who are seeking to standardize the sales process. Because of this, business owners may need to take specific measures to ensure thorough, accurate reporting from their contract-based personnel.
State and federal governments prefer businesses with full-time employees, and it’s not hard to see why. Full-time workers provide more tax and insurance money. It’s also harder for them to hide their income from the IRS.
If either the state or federal government believes you have misclassified your employees as independent contractors, you could be faced with an audit.
Right to Terminate Depends on the Sales Contractor Agreement
In some cases, you may need to fire a 1099 sales rep. But this can be difficult unless you can prove they violated the terms of the original written agreement.
Likewise, if you terminate a contract employee, they may sue you for breach of contract. If you need to get rid of an independent contractor, your options may be limited to waiting out their contract period or clearly documenting a violation of its terms.
No Workers’ Compensation Insurance
Workers’ compensation protects not only the employee, but their employer, as well. Independent contractors don’t have the protection of workers’ compensation. This means that if your employee is injured in the performance of their duties (like getting into an accident while driving to a sales call), they may sue you for damages.
1099 Sales Rep Agreement Template
After reviewing your options, you might want to consider hiring an independent sales contractor. But how do you set the terms of this agreement? The following is a template that you can use to create an independent sales contractor agreement.
· Party Information: First, make sure that the contract includes the name and contact details of both the client and contractor. You should also record the date the contract is formed, providing a copy to each side.
· Services: Here, you’ll need to list or describe the services being rendered. Be specific. This section is the core of the agreement, as it establishes what you — the client — expect to receive from the relationship.
· Payment: Likewise, you’ll need to specify the payment that will be rendered to the contractor. You can stipulate that payment is due upon completion or assign another date or milestone at which payment will be rendered. Be sure to also designate the amount of commission to which the representative is entitled, as well as any caps or limits your company imposes on these commissions.
· Due Date: If your work is time-sensitive, you can assign a due date for milestones or project completion.
· Expenses: Sales reps frequently encounter expenses including travel, hotel accommodations, meals, and other related purchases. Your contract should identify which party will handle the expenses and what will be covered. In some cases, your sales rep is responsible for handling all expenses, but it’s common for businesses to provide an expense account of per diem in a specified amount.
· Termination of Employment: At what point is the contract concluded? Typically, the business relationship concludes once the work is complete, though it’s important to say this outright to eliminate any expectation of continued employment.
· Additional Terms and Conditions: Any additional requirements should be listed here. When in doubt, consult a lawyer, who can assist you with any language you would like to include.
· Signature: Both parties must sign the contract in order for the agreement to be finalized. The date should be recorded, as well. Provide a copy of the finalized, signed contract to each party.
Always be specific. As a general rule, it’s better to overexplain and communicate too much detail than to leave anything to assumption. It’s also a wise idea to have a lawyer review your business contract templates before you put them into regular use, and you may want to pursue legal advice for any special circumstances or projects you’re seeking to cover.
The Bottom Line
Despite the lack of standard benefits, many independent sales contractors are thriving in careers that offer greater flexibility and a better work-life balance. As we saw above, independent contractors have an average tenure roughly twice the duration of their full-time counterparts, which testifies to the efficacy of this hiring strategy.
Employers, too, may benefit from independent sales reps, who can bring a specialized skill set without the financial demands of a full-time sales force.