1099 Violations for Sales Reps & Independent Contractors
What are “1099” forms used for?
1099 forms are used by employers to inform the IRS to classify service providers so they are not considered employees but only independent contractors.
If someone is an employee, the employer is responsible to the IRS for payroll tax on that person’s compensation and must make certain deductions for Social Security and other itemized deductions from their gross compensation.
What Are “1099” Violations?
1099 violations occur primarily when sales reps are hired by manufacturers as independent contractors, but are treated more as employees. This includes requiring daily reporting and controlling the sales rep’s schedule. Those are part of the formula used by the IRS to distinguish employees from independent contractors.
1099 violations can also occur when sales reps who are truly employees (under IRS criteria) are classified as independent contractors, usually so an employer can avoid: payroll tax liability on their pay; compensating them for overtime; giving breaks and other such employee benefits.
If your Principal is trying to control your schedule, requiring daily reporting, or otherwise micromanaging you, they may be converting you from an independent contractor to an employee. That can be used as leverage to push back against any such over-supervision.
Likewise, if your Principal is classifying you as an independent contractor, but treating you as an employee under IRS criteria, a sales rep has the right to demand employee benefits such as overtime pay, breaks, worker’s compensation insurance and other such benefits.
If you’ve been misclassified as an independent contractor, or as an employee,
Contact our attorneys today for a free consultation
SCETM
The Sales Commission Enforcers
Find Out How Much Your Case Is Worth
Over 90% of our cases settle without prolonged litigation.
Common Types of 1099 Violations
- Misclassification as a 1099 Independent Contractor (Instead of a W-2 Employee).
- Misclassification as a W-2 Employee (Instead of a 1099 Independent Contractor).
- Unpaid Wages to which W-2 Employees are Entitled (Such as Overtime pay).
- Failure to Provide Written Commission Agreements (To 1099 Sales Reps).
- Illegal Deductions from Compensation Structure (Resulting in Violation of Labor Laws).
- Failure to Timely Pay Final Commissions After Termination (To 1099 Sales Reps).
Legal Protections for Independent Contractors
Federal Laws
- Fair Labor Standards Act (FLSA)
- Employee Retirement Income Security Act (ERISA)
- Internal Revenue Code (IRS 1099 Rules)
State Laws
- California’s Independent Contractor Law (AB5)
- California’s Sales Commission Protection Act
- New York Labor Laws on Sales Commissions
- New Jersey’s Sales Commission Protection Act
- Illinois’ Sales Commission Protection Act
- State-Specific Wage Payment & Benefit Acts
- Double/Triple/Quadruple Damages re Independent Contractor Commissions
- Attorney Fee Recovery and Legal Costs
Steps to Take If You Suspect 1099 Violations
Step 1: Review Contracts and Agreements
Look for provisions related to work responsibilities and classification.
Step 2: Gather Documentation
Employment/Representation contracts, pay statements, emails, and tax forms.
Step 3: Verify Classification Status
Check IRS and State Law criteria for status.
Step 4: Send a Demand Letter
Formally request unpaid wages or commissions & proper reclassification.
Step 5: Consult with an Attorney
Assess violations and possible legal claims.
Step 6: Seek to Negotiate a Resolution
Meet with your Principal/Employer to discuss options and a path forward.
Step 7: Exhaust administrative remedies
File an Administrative Claim with, e.g. the California Employment Development Department (EDD) which can make recommendations to manufacturers to honor employee claims and rights.
Step 8: File a Claim or Lawsuit
Only after negotiations fail.
*Must exhaust administrative remedies with agencies like EDD first.
How a Sales Rep Attorney Can Help with 1099 Violations
A sales rep Attorney can help with 1099 violations by
Reviewing Independent Contractor Agreements (to evaluate terms and compliance.)
Filing Misclassification Claims (to pursue penalties for improper 1099 status.)
Recovering Unpaid Commissions (by demanding payment for completed sales.)
Sending Demand Letters (to seek resolutions out of Court.)
Litigating Claims for Commissions, Back Pay, Attorney Fees (to enforce rights in court if needed.)
FAQs About 1099 Violations for Sales Representatives
A 1099 violation is when an employer wrongfully classifies an employee as an independent contractor, or an independent contractor as an employee.
A misclassification as a 1099 contractor can be ascertained by consulting the IRS Bulletin listing the criteria by which one is classified as either an employee or independent contractor.
If it’s still a mystery, contact an attorney specializing in the law of independent contractors. We have over 70 years combined experience in this field of law.
The damages one can recover for unpaid commissions or misclassification depend on the applicable State or Federal law. From payment of the amount owed, to quadruple damages on unpaid commissions to sales reps, to recovery of overtime compensation due to employees.
Independent contractors do have legal protections under Federal laws; but the more specific protections are found under State laws.
A sales rep can recover commissions for sales that occurred after termination but only if: 1) there was no written contract; 2) the written contract does not address the right to post-termination sales commissions, or 3) the termination was done in bad faith so the principal could avoid the payment of identifiable commissions.
Legal protections for 1099 independent contractors (such as independent sales reps), versus true W-2 employees of a manufacturer vary drastically.
If you’ve been misclassified or denied commissions or employee compensation, contact our attorneys today for a free consultation.