Skip to Main Content

Keeping you informed

Does Employing a Single Outside Salesperson Make You an Employer Under that State's Law?

    Client Alerts
  • September 21, 2012

Many growing companies find themselves in need of regional salespersons outside their home states. They often hire an outside salesperson who works out of his or her home when not on the road. At what point in time does the company subject itself to the employment laws and jurisdiction of the state where the salesperson resides?

The answer to this question can be complex. States differ in when they consider a company to be an employer subject to their laws and regulations. In many states, employing even one salesperson working out of their home means that the company is doing business in that state, and is subject to state income tax withholding requirements, unemployment and Workers' Compensation insurance premiums, and the obligation to register with the state as an employer and company doing business within its borders.

Some companies attempt to avoid these requirements by creating a fiction that assigns the salesperson to the home office, and treats them as if they live and work in that state. This method can cause problems if, for example, the employee is terminated and files for unemployment benefits in his or her home state.

In some circumstances, companies may be able to structure an independent contractor sales representative relationship in order to avoid compliance with other states' employment requirements. However, this relationship must meet tests for true contractor status. In the case of sales representatives, this often includes their ability to represent multiple product lines from various companies as opposed to exclusive work for the company.

In most situations, the better recourse may be for the company to research in advance and take steps to comply with employment laws in the states where the salespersons reside. Many payroll companies can assist with multiple state tax and withholding requirements. Although cumbersome, these efforts to comply with state laws can avoid expensive and potentially embarrassing inquiries about why the company failed to meet basic employer responsibilities.