Commission only sales staff
Discussion
I wonder what people's opinions are around using self-employed, commission only sales staff, especially in product areas where they are unfamilar? Can good sales people sell anything once product trained?
I have a new product I have develooped but which I am licensing for a much larger company to produce, market and sell. Part of the deal is that in addition to my royalty I can buy the product at discount, and that certain sectors are largely being left up to me to sell into as they have other target sectrors for the next 3 years.
I am not a sales person and don't enjoy the chase to be honest. I had thought about approaching people who I know in sales who look like they are losing their commissions at the moment, with a view to offering them free product training, some info on sectors and some leads I have from my existing contacts. I think it is an enduring relationship sell; keeping contact, using existing contacts to sell wider within the client organisation, no hard sell etc. This is the type of relationship they have with their clients and I wonder if it will transfer to the public sector?
There may be nothing in it for me as the discount is in line with the commission the producers pay their own sales staff (around 10%), but as my royalty is larger than the discount/commission, then promoting sales is in my interests. There is no danger of markey saturation ( well not before I am living on my own island in the Seychelles anyway) and the sectors are fairly well defined between myself and the producer (broadly, they do private sector, I do public sector).
It is a very niche market product so nobody really has the expeience with this particular product and the sales staff entering the role of selling similar products just get product training, which is what makes me think it is possible.
Feasible?
Brown and Boris said:
I wonder what people's opinions are around using self-employed, commission only sales staff, especially in product areas where they are unfamilar? Can good sales people sell anything once product trained?
I think that, as I am sure you already know, it all depends on the product, the price, and whether or not the potential customers can afford it. I've seen plenty of products that I want, even some that could save or even make me money, but I simply can't afford them at the moment, anyway.If you are sure that your product will sell, at the price set, why the doubts about the sales staff?
singlecoil said:
Brown and Boris said:
I wonder what people's opinions are around using self-employed, commission only sales staff, especially in product areas where they are unfamilar? Can good sales people sell anything once product trained?
I think that, as I am sure you already know, it all depends on the product, the price, and whether or not the potential customers can afford it. I've seen plenty of products that I want, even some that could save or even make me money, but I simply can't afford them at the moment, anyway.If you are sure that your product will sell, at the price set, why the doubts about the sales staff?
Also, if they waded in heavy handed to some of my public sector clients it could damage my reputation if they couldn't convert to the new product senstively.
Cost wise it isn't a high value product so they would depend on volume and repeat sales which is why the fact they curently work in relationship B2B sales as got me thinking along these lines.
Eric Mc said:
How would you be able to claim they weren't employees. The Revenue do not normally consider sales staff as self-employed.
Would they be working for other customers of their own - including some of your competitors?
It sounds like there are a couple of people lined up for this - couldnt they just set up a ltd or a partnership and sign a distribution agreement? I'm thinking of the way that ir35 is set up and the pointers for being a deemed employee. If they are in control of their own working, are free to do other stuff etc then is there a problem?Would they be working for other customers of their own - including some of your competitors?
It is, of course, possible to hire a marketing business rather than a sales individuals. Obviously, all the rules about exhibiting "badges of trade" to prove that the individuals really are in business on their own account would need to be demonstrated - both on paper (by a contract) and in reality. It doesn't really matter whether the individual classifies themselves as Self-Employed, a partner in a partnership or operates through a limited company.
If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
Eric Mc said:
It is, of course, possible to hire a marketing business rather than a sales individuals. Obviously, all the rules about exhibiting "badges of trade" to prove that the individuals really are in business on their own account would need to be demonstrated - both on paper (by a contract) and in reality. It doesn't really matter whether the individual classifies themselves as Self-Employed, a partner in a partnership or operates through a limited company.
If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
Eric, what I had in mind was a simple self employed baiss. I have a product to sell, they sell it for £10 on their own initiative and pay me £9. Gets tricky if I have to pay the producer (which I may) becaus ethen they would have to pay me the £9 and get the £10 direct from the customer.If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
Its pretty simple to just pay the sales person an introduction fee or commission on all present and future orders. Lots of people do this. Most succesful people I know in sales are all commission only. If you are confident in your abilities to sell then why take a salary and a lower commission. Better to take no salary and then get a higher commission. Most businesses would prefer to pay no basic and only commission on orders. Boring Sales Speak - Win Win.
In response to the OP: Yes I think most good sales people should be able to diversify into a product market they know nothing about. Unless they have been doing well in one market because they had a full contact list that others did not. So thats more old school boys network.
Selling a product is just that. You need to understand the product, why people would want to buy it, identify the market and pitch it. If you cant do that you cant sell.
In response to the OP: Yes I think most good sales people should be able to diversify into a product market they know nothing about. Unless they have been doing well in one market because they had a full contact list that others did not. So thats more old school boys network.
Selling a product is just that. You need to understand the product, why people would want to buy it, identify the market and pitch it. If you cant do that you cant sell.
Brown and Boris said:
Eric Mc said:
It is, of course, possible to hire a marketing business rather than a sales individuals. Obviously, all the rules about exhibiting "badges of trade" to prove that the individuals really are in business on their own account would need to be demonstrated - both on paper (by a contract) and in reality. It doesn't really matter whether the individual classifies themselves as Self-Employed, a partner in a partnership or operates through a limited company.
If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
Eric, what I had in mind was a simple self employed baiss. I have a product to sell, they sell it for £10 on their own initiative and pay me £9. Gets tricky if I have to pay the producer (which I may) becaus ethen they would have to pay me the £9 and get the £10 direct from the customer.If the badges of trade tests fail, then the situation is -
Individual - must be taken on as an employee
Ltd Co - IR35 will need to be applied
Partnership - IR35 will need to be applied
On what criteria are you assuming that they should not be treated as employees?
You need to be clear in your understanding of the relationship you have with these people, otherwise the Revenue will come down on you like a ton of bricks and ask that you pay over to them all the unpaid PAYE and NIC (employee's AND employer's) that you SHOULD have paid.
B&B...Eric is right. You can't decide that someone is self employed rather than employed.
Why are you doing this? To avoid the PAYE paperwork? Remember that "commission" is really just salary, and therefore Income Tax, EeNI & ErNi must be paid on this if they are classed as employed (by HMRC, not by you!)
Some options:
1. Treat them as employees, and pay them PAYE (but still commission only)
2. Only engage with sales companies, not individuals - i.e. a subcontractor with their own limited company, this way you will avoid the risk of being chased for PAYE Tax/NI in the event of any self employed/employed issue.
Why are you doing this? To avoid the PAYE paperwork? Remember that "commission" is really just salary, and therefore Income Tax, EeNI & ErNi must be paid on this if they are classed as employed (by HMRC, not by you!)
Some options:
1. Treat them as employees, and pay them PAYE (but still commission only)
2. Only engage with sales companies, not individuals - i.e. a subcontractor with their own limited company, this way you will avoid the risk of being chased for PAYE Tax/NI in the event of any self employed/employed issue.
HMRC say;
Can they hire someone to do the work or engage helpers at their own expense? YES
Do they risk their own money? In terms of costs (time, travel, phone) which may not lead to any commission, YES
Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves? YES, PC, Phone, Car.
Do they agree to do a job for a fixed price regardless of how long the job may take? YES, commission per sale and no commission if no sale.
Can they decide what work to do, how and when to do the work and where to provide the services? YES, I don;t care when they work, where they woirk from and who else they work for.
Do they regularly work for a number of different people? YES they work for other companies on an employee basis.
Do they have to correct unsatisfactory work in their own time and at their own expense? YES, they would have to put a deal back if it fell apart and sort out the deliveries etc.
I think I can tick all the YES boxes.
Can they hire someone to do the work or engage helpers at their own expense? YES
Do they risk their own money? In terms of costs (time, travel, phone) which may not lead to any commission, YES
Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves? YES, PC, Phone, Car.
Do they agree to do a job for a fixed price regardless of how long the job may take? YES, commission per sale and no commission if no sale.
Can they decide what work to do, how and when to do the work and where to provide the services? YES, I don;t care when they work, where they woirk from and who else they work for.
Do they regularly work for a number of different people? YES they work for other companies on an employee basis.
Do they have to correct unsatisfactory work in their own time and at their own expense? YES, they would have to put a deal back if it fell apart and sort out the deliveries etc.
I think I can tick all the YES boxes.
Don't forget that the above list is only a set of pointers and not a hard and fast set of rules. The Revenue takes a holistic view of the relationship rather than just tick off the "yes" and "no" boxes.
In one of the questions, they ask about the individuals working for others apart from you. Surely they mean "others" in a self-employed capacity i.e. they have multiple customers themselves. Merely stating that they have other "employment" will probably not satisfy the Revenue that they are self-employed with you.
Another aspect is how YOUR customers view them. If a customer is approached by individuals who are acting in their capacity as your sales force, there is a strong chance that they will assume that they are your employees - operating with your full authority and under your full control. What would you tell your customers if they asked you about the behaviour of a member of your sales team. Would you tell them, "Sorry, I have limited control over what they do and say as I do not really employ them".?
The important thing to know is that, if the Revenue decide to reclassify any or all of these individuals as "employees" at a later date, it is YOU who will have to find all the underpaid PAYE and NI when they calculate the amounts due - not them.
It is you who is taking the big risk - in order to facilitate them.
I always think that it is not worth it.
In one of the questions, they ask about the individuals working for others apart from you. Surely they mean "others" in a self-employed capacity i.e. they have multiple customers themselves. Merely stating that they have other "employment" will probably not satisfy the Revenue that they are self-employed with you.
Another aspect is how YOUR customers view them. If a customer is approached by individuals who are acting in their capacity as your sales force, there is a strong chance that they will assume that they are your employees - operating with your full authority and under your full control. What would you tell your customers if they asked you about the behaviour of a member of your sales team. Would you tell them, "Sorry, I have limited control over what they do and say as I do not really employ them".?
The important thing to know is that, if the Revenue decide to reclassify any or all of these individuals as "employees" at a later date, it is YOU who will have to find all the underpaid PAYE and NI when they calculate the amounts due - not them.
It is you who is taking the big risk - in order to facilitate them.
I always think that it is not worth it.
In my business, specialist high-tech sales, it's absolutely standard practice to employ sales agents. In fact, my company is a sales agency and we have some employees and some agents working for us. Even our agents sometimes appear (to customers) as if they are employees of our principals even though they're two steps removed.
I guess the key thing is that we, and the people who work for us, are proper Ltd (and VAT registered) companies even where the company is a single person. We (and our sub-contracted agents) act for a range of principals so no one principal "controls" us (and we don't have sole control of our agents either).
With the agents that we have working for us, we tend to pay them a monthly retainer or a guaranteed minimum payment and then they get paid straight commission - no expenses etc. The advantage of paying them some minimum amount is that it does give a degree of control (ie getting monthly progress reports etc) which it is otherwise difficult to enforce.
I guess the key thing is that we, and the people who work for us, are proper Ltd (and VAT registered) companies even where the company is a single person. We (and our sub-contracted agents) act for a range of principals so no one principal "controls" us (and we don't have sole control of our agents either).
With the agents that we have working for us, we tend to pay them a monthly retainer or a guaranteed minimum payment and then they get paid straight commission - no expenses etc. The advantage of paying them some minimum amount is that it does give a degree of control (ie getting monthly progress reports etc) which it is otherwise difficult to enforce.
Edited by Deva Link on Sunday 28th December 10:54
Deva Link said:
In my business, specialist high-tech sales, it's absolutely standard practice to employ sales agents. In fact, my company is a sales agency and we have some employees and some agents working for us. Even our agents sometimes appear (to customers) as if they are employees of our principals even though they're two steps removed.
I guess the key thing is that we, and the people who work for us, are proper Ltd (and VAT registered) companies even where the company is a single person. We (and our sub-contracted agents) act for a range of principals so no one principal "controls" us (and we don't have sole control of our agents either).
With the agents that we have working for us, we tend to pay them a monthly retainer or a guaranteed minimum payment and then they get paid straight commission - no expenses etc. The advantage of paying them some minimum amount is that it does give a degree of control (ie getting monthly progress reports etc) which it is otherwise difficult to enforce.
If you go about this the right way, you can make it work. There is no doubt about it. But merely hiring individuals and trusting in the assumption that you have ticked all the right boxes is rather risky, in my opinion.I guess the key thing is that we, and the people who work for us, are proper Ltd (and VAT registered) companies even where the company is a single person. We (and our sub-contracted agents) act for a range of principals so no one principal "controls" us (and we don't have sole control of our agents either).
With the agents that we have working for us, we tend to pay them a monthly retainer or a guaranteed minimum payment and then they get paid straight commission - no expenses etc. The advantage of paying them some minimum amount is that it does give a degree of control (ie getting monthly progress reports etc) which it is otherwise difficult to enforce.
Edited by Deva Link on Sunday 28th December 10:54
Using a bona fide marketing agency would absolve you of all the risks - especially if the agency (whether the agency employs one or a hundred indiviudals)is a genuine stand alone trading operation in its own right.
It is even better if the agency is a limited company or a partnership rather than an sole trader. If that is the case, even if there are "employee/self-employment" issues arising, the entire risk of having to find unpaid taxes passses over to the agency/individual/limited compoany under the IR35 provisions.
Eric Mc said:
In one of the questions, they ask about the individuals working for others apart from you. Surely they mean "others" in a self-employed capacity i.e. they have multiple customers themselves. Merely stating that they have other "employment" will probably not satisfy the Revenue that they are self-employed with you.
I'm not entirely sure that's strictly accurate. An individual may have a number of simultaneous "engagements" or "employments". The test of whether they are self-employed or not will be made for each specific employment / engagement, not just on their operations as a whole.The issues of control and so on are typically more important than the issue of whether they work for more than one person, as otherwise it would be logically impossible to consider a single engagement / employment on its own merits.
The simplest way to proceed would, surely, be for you to offer a franchise agreement to the "sales agents". Like many franchise agreements, it would specify a lot of detail, which might include:
- they can only buy from you
- they have to take your credit (you can charge them interest, which may be better for you than trading margin)
- they have to follow your guidelines on branding, communication, and so on
- they can only sell to a tightly-defined list of "territories"
- you can rescind a client, a territory or the whole franchise if they muck it up, and they have to give you all their records if you do (so you can pass an account onto another franchisee)
- they have to call their business "XYZ London" or whatever
- they have to use your (online, preferably) CRM / database / ordering systems, so you always have access to customer data
Now the relationship is clear - they are your franchisees, they trade on their own account, but you have lots of control over them without any financial risk and without getting them on your books as employees.
The only down-side is (a) a little complication, and (b) it isn't building your business per se (but, since you see all the turnover, in actual fact it is building your business and theirs at the same time).
Have I missed something?
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