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Education

Differences between 1099 status pros and cons

W-2 and 1099 for MLSs Independent contractors can represent several companies
including card processors, gateways and POS companies.
They can also buy their own terminals through a processor
or distributor.

When it comes to taxes, employees have an advantage
over independent contractors. Successful 1099 agents must
file estimates and pay taxes quarterly. W-2 agents file
annually, and their employers deduct money for taxes on
their behalf. Employees, however, will have a surprise this
year. I predict many will switch to independent contractor
By Bill Pirtle status for one reason: unreimbursed employee expenses.
Author and Business Consultant W-2 agents can no longer claim deductions for business
expenses they cover out of pocket.
n my 2012 book, Credit Card Processing for Sales
Agents, Paul Rianda noted that ISOs typically con- How big a deal is this? It will vary from agent to agent.
sider expenses and control when deciding whether Picture an MLS working out of his home, with cell
I merchant level salespeople (MLSs) should be classi- phones and Internet and driving 40,000 miles per year.
fied as independent contractors or employees. This article The 1099 agent can deduct expenses for the home office,
discusses the advantages and disadvantages of each status miscellaneous expenses and mileage. With mileage rate
for MLSs. at 54.5 cents per mile, the deduction for driving, alone,
would be $21,800.
If you own an ISO and want MLSs to punch a time clock,
follow a designated process, complete training to your Another option worth mentioning for experienced
specifications, and be under your control; you'll want to MLSs is companies that offer employees a draw against
hire them as employees, also known as W-2 agents. With commission. A couple of processors offer draw programs
this business model, you'll also need an HR department paying between $4,000 and $10,000 a month. This is not
and/or payroll company. free money, but it exemplifies a willingness to invest in
established MLSs that will deliver.
If you want to avoid the expense of employees, bring
MLSs on independent contractors, also called 1099 agents. A major decision
Note, however, that you'll lose the ability to control their I have worked as both an employee and an independent
activities. Companies using both types of workers thrive
with experienced and productive agents. But which is contractor. If you are a newer agent who wants training,
higher upfront bonuses or just wants to try out the
better for the MLSs?
industry, investigate W-2 opportunities.
W-2 status pros and cons
Consider independent contractor opportunities if any of
New agents are normally better off as employees, which the following apply. You:
some see as a safer option. But W-2 agents typically don't • Wish to use the best company for your prospect's
receive a salary or hourly wage. Salaried positions that
do exist provide training but offer little in residuals and situation
require quotas and minimums. As employees sign deals, • Desire choices on gateway, terminal, and POS options
several companies offer them upfront commissions with • Want residuals to be vested with first sale
lower commission schedules.
• Expect to retain customers long term
Employees must know when their residuals vest and what • Want to deduct miscellaneous business expenses
quotas are required for them to keep their positions and (mileage, office, cell and Internet, chamber and
residual streams. Those who are mildly successful but not association dues, business subscriptions, etc.)
hitting quotas could be dismissed and lose residuals.
• Want to work part time
Other drawbacks involve control and long-term income. Like any major decision, consider the pros and cons before
Long-term income is easy to evaluate. An upfront bonus taking action. MLSs can do very well with either option.
plus 20 to 25 percent residual is great if you need income Choose the one you will love and thrive with.
right away, but the 50 to 80 percent that is common for
independent contractors can produce superior income over Bill Pirtle is the author of the training book Credit Card Processing for
time. In addition, employees can be micro managed and Sales Agents. He has created a site for small business owners at yours-
be required to process everything exclusively through a mallbusinessresource.com. He can be reached at 248-444-8009, on
designated processor, including supplementary products. LinkedIn or via Twitter @billpirtle.

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