Post a new topic
    4 Replies Latest reply on Jan 24, 2008 6:28 AM by LUCKIEST

    Independent Contractor, Franchisee or Strategic Alliance?

    talented Newbie
      Hello. I have a web design business and am looking to expand. I am low on funds but have thought of creative ways to grow. I am thinking of placing ads to hire independent contractors to work out of their home who are experienced sales pros to prospect for hot leads where I would then close the sale (if the sale is closed and payment is secured they receive commission). In order to not hire an employee I would give the independent contractor plenty of freedom as long as they abide by federal state and local laws. Therefore, they would need to be in business for themself, which brings me to my first question. Should I require them to obtain their own business license, fictitious business name, salespersons license and EIN before beginning any prospecting? I would like to think of our business relationship as a strategic alliance. Is this a strategic alliance or more like a franchisee? How should I promote it legally? Thanks.
        • Re: Independent Contractor, Franchisee or Strategic Alliance?
          DomainDiva Ranger
          If you hire somone on a contrct basis, you are responsible for giving them a 1099 at the end of the year for the monies paid during the year.

          You are trying to complicate things. It's not your repsonsibility to make sure people comply with good business practices. I use contract sales people and the only thing my accountant worries about got it: the 1099.

          Your biggest problem is the sales contract and the percentage of each sale that you will pay, payment intervals and don't forget the tax clause as well....that being that there is no partnership, implied or otherwise and that the contractor is responsible for all taxes, local, state and federal.

          There is nothing to 'promote legally' is what it agreement between two entities for services. You will also want to have some sort of a performance clause tied to contract longevity.
          1 of 1 people found this helpful
            • Re: Independent Contractor, Franchisee or Strategic Alliance?
              talented Newbie
              Thank you DomainDiva. It appears that I am on the right path. I do have a independent contractor agreement, which goes over the terms of the relationship. It specifies that it is a 1099 relationship where they pay their own taxes and where I report their income. In addition, I state that they are not an employee or partner and must abide by federal, state and local laws. It is a rather detailed contract. I just want to make sure that I work with someone who has experience, which I will investigate during the interview process. I have been reading various court cases within Lexis-Nexis Legal and just want to make sure that it is consistent with legalities. I have no web design horror stories and I want to make sure I have no employee horror stories (employees falsely categorized as independent contractors). I just want successful sales growth.
            • Re: Independent Contractor, Franchisee or Strategic Alliance?
              Lighthouse24 Ranger

              To confirm Diva's post, you are talking about recruiting "Direct Sellers," and a person can be a Direct Seller under his or her own name and SSN -- and that's what the 1099 would reflect. If their state or local jurisdiction requires a license to sell your product (as with insurance products or real estate in most states), then they'll need a license (and you'd want to confirm and verify that as part of the qualification process).

              The "horror stories" you mentioned often arise because many employers mistaken think that there are only two categories of workers -- "Employees" and "Independent Contractors." There are actually five choices, and "Statutory Nonemployee" is the one you want. See IRS Publication 15-A under Statutory Nonemployee - Direct Seller at and I think you'll agree that it best fits your situation.

              If someone is an independent contractor, the employer only has the right to control the result of the work being done, not the means and methods of accomplishing that result. If someone is selling YOUR product, however, you ARE going to control the means and methods to some degree -- or else you're going to have some misled and angry customers! So by calling them contractors, but not treating them as such, employers wade right into the trap of having them reclassified as employees. You can avoid that by just calling them the right thing from the beginning -- so it was an excellent question to ask when you did!

              Best wishes.
              • Re: Independent Contractor, Franchisee or Strategic Alliance?
                LUCKIEST Guide
                Talented, you have a web design business and am looking to expand How long have you been in business??
                Do you have an Accountant?? How about a Business and Marketing Plan
                On the Members page, tell us a few words about you and your business