The Internal Revenue Service considers car salespeople to be common-law employees and not independent contractors. Although car salesmen and saleswomen are, in a sense, running their own small business within the car dealerships, the right to control the details surrounding the position are held by the dealerships, which, in turn, makes salespeople employees rather than independent contractors.
Defining an Independent Contractor
An independent contractor is a professional or subcontractor who has his own business and offers services to the public. Independent contractors may work as sole proprietors or arrange their business as a limited liability company or corporation. Independent contractors are identified as such only if the person for whom the service is completed has control over only the end result of the work and not how the work is accomplished.
Defining a Common-Law Employee
A common-law employee is an individual who performs services for a business; in this case, a car dealership. In the case of common-law employees, the employer controls what is done by the employee and how said goals are reached. Even if the employee has some freedom in her position, such as in a car dealership, she is a common-law employee because the dealership can control the details of how the job is completed.
Although the rules defining car salespeople as common-law employees are laid out by the Internal Revenue Service, it is possible for an employee to be misclassified. In the event a car salesperson is improperly classified as an independent contractor, the dealership would not be required to pay for health insurance or taxes for the contractor, making the salesperson solely responsible for the full cost of his own taxes and benefits. If an employee is willingly misclassified as an independent contractor by a company, the business could be liable for paying employment taxes for the contractor in question.
Social Security Implications
Salespeople classified as independent contractors do not have Social Security or Medicare taxes withheld from their paychecks. Additionally, in the case of independent contractors, the business is not required to contribute toward the employee's outstanding Social Security and Medicare taxes. If an independent contractor is actually an employee, which would be the case with a car salesperson, the worker can report the amount of the uncollected taxes that results from the misclassification to the IRS.