The salespeople who promote and sell your company's products and services are key to your success. They are the public face of your company and provide some of your most important marketing.
Small companies often find that it makes sense to hire independent sales representatives who function as independent contractors, rather than as employees. It is likely your company will need more than one sales representative and, in that case, you will want to use a nonexclusive sales representative agreement, which makes it clear that you are using several representatives to sell your products or services.
Hiring independent sales representatives
When you hire sales reps to market your product, you'll want to choose representatives who have experience in your industry, have time to successfully promote your business, and who understand your sales goals. You'll likely need to interview several people before you make a decision. Once you choose the reps you want to work with, you will explain the terms of your agreement. You'll be paying them a commission on their sales, not a salary. They will not receive benefits. And you'll be using several reps at the same time, so they will work on a nonexclusive basis.
Each salesperson will need to complete the IRS's Request for Taxpayer Identification Number and Certification (Form W-9) so that you can report their earnings. At the end of the year, you will complete the Miscellaneous Income (Form 1099-MISC) and provide a copy to the salesperson, showing their commission earnings.
Nonexclusive sales representative agreement
You will need the sales reps to sign a sales agreement that sets out the terms of your relationship. This agreement should contain:
- The names and addresses of both parties
- A statement that it is a nonexclusive sales agreement, allowing you to work with other sales representatives
- A statement that the salesperson is an independent contractor, not an employee, and that they are responsible for paying income taxes and will not receive benefits
- An explanation of what the salesperson is authorized to sell
- Any restrictions on where the salesperson can sell, such as designating a geographical territory, or to whom they can sell; a customer list might be included here
- Clarification that the company will determine the price of the products being sold
- An explanation of the commission that will be paid, how often it will be paid, how chargebacks will be handled, and how commissions will be calculated
- A statement about how expenses will be handled and what if any expenses the company will pay for, how they should be reported, and how they will be reimbursed; if no expenses will be paid, that should be clearly stated
- A nondisclosure clause that helps ensure the salesperson cannot share confidential information about your company
- A conflict of interest clause that states that the sales rep does not have any conflict of interest and, if any conflict arises, it will be reported
- A section that explains causes for termination and how termination will be handled
- A statement that any company property used by the salesperson—such as a laptop or car—is the property of the company and must be returned when the agreement ends
- Signatures of both parties
Terminating a sale representative agreement
You can terminate a sales rep who works for your company, so long as you follow the procedures laid out in the agreement. Most agreements allow you to terminate for no reason. When you terminate a sales representative, you need to calculate a final commission report and you must remember to complete the IRS Form 1099 at the end of the year for that salesperson.
You can create your own nonexclusive sales representative agreement or you can work with an attorney or use a nonexclusive sales agreement template to do so. A nonexclusive sales representative agreement allows you to establish a clear working relationship with the sales reps who will sell your products.