From the HIRA Archives

Protecting the IMR Relationship:
Tips for Avoiding Problems

There's one thing to remember about the manufacturer/agent venture. Its independent contractor basis must be inviolate. This is essential, a requirement not to be casually overlooked or taken lightly. The determinants are stringent and subject to varying dash and sometimes capricious dash interpretation from potentially unfriendly reviewers namely the IRS. They are revenue-conscious, and any infraction or indiscretion in dealings between an independent contractor and his principles is fair game. Keep in mind, too, that a practice that appears to be perfectly acceptable in your industry, may, to someone outside it, take on the appearance of an employer-employee relationship. Always remember these major points in dealing with your principles and agents, and scrupulously avoid the pitfalls which could cause problems down the road.

• Remember that the so-called element of control is the primary determinant of an independent contractor's principal relationship. In theory, the principle has no right to control either the means by which a task is accomplished or the actions of the one performing it. So, should it be in practice?
• Avoid anything that gives so much as even a hint of control regular written or oral sales call reports are the most often cited example of this kind of infringement.
• Always state your relationship as an independent contractor/principal. This document is a key factor and tent. Let it be known that you as principal and agent intend to have an independent contractor relationship.
• Be sure your tax reporting is accurate. Manufacturers' form 1099-NEC tells the IRS all it needs to know about your non-employee compensation. If you pay over $600 a year in commissions to an agent, you're obliged to file it. And there are stricter penalties, effective this year if you don't. Agents, be sure to uphold your end of the tax filing agreement with proper file quarterly filings SECA payments, and where necessary payroll taxes and we're holdings of your own employees.

Faced with these kinds of strictures, many manufacturers - even agents with independent sub-reps ask, “But how do I know what's going on in the territory without call reports?” A valid question, for no one can deny the need for adequate communication between the parties. But with a little imagination, it's easy to see that the “keep me informed” goal can be adequately - and I ventured to say more effectively - accomplished through means other than the fill-this-out-once-a-week-and-send-it-into-me-call-report.

Point. Professional manufacturers’ agents will always keep their principles informed about vital information in the marketplace. It is after all in their best interest to do so.

In his recently published manual Make Your Future Happen: A Guide to Becoming a Self-Employed Manufacturers’ Representative longtime agent Ken Benjamin writes that his sales call report is a purchase order from his customer. He also advises that the agent who is only seen when he picks up a commission check we'll soon find himself minus a principal or two. A small manufacturers’ representative Benjamin maintains, will do everything in his power to keep an open channel of communication: by telephone, when in the course of weekly business, a development and the territory should be brought to the manufacturer's attention; in writing if a customer receives a major contract which could increase sales for the principal's product. Or in any way which the agent feels will keep the manufacturer aware of activities in the territory. Call them “market information summaries” or whatever, but be sure that the form of communication which takes place between manufacturer and agent is out of the realm of “regular” or “required”.

Manufacturers, keep this in mind: always acknowledge feedback from your agents. This is a good way to stimulate the regular flow of information which may try to prime through call reports. Let your agents know that you not only Rev the information they supply you, but that you use it in your company's marketing strategy. To ignore information received is to create a disincentive to communicate. It's a two-way St. and using these pointers can facilitate the communication needed, without fear of violating that all-too-important independent contractor relationship.