The Difference Between an Agent and an Independent Contractor

by Austin Berry; Updated September 26, 2017
Young man  with head phone at work providing customer service

Agents and independent contractors sell products or provide services within different legal boundaries. Agents are employees, while independent contractors are self-employed; this difference affects how services are performed. For example, in insurance both agents and independent contractors are licensed to sell insurance. Of the two, agents are more likely to be bound by corporate exclusivity rules in terms of what financial products he or she can sell.

Agents

The definition of an agent varies across industries, according to Barron's, in business the term refers to the transactional representation of a principal or executive authority with other parties. To illustrate, real estate and insurance agents have a responsibility to represent the company they work for when dealing with third parties even if the agent's employer is undisclosed. Moreover, according to law professor Jeffrey Pittman, agents are more likely to be provided with work-related equipment and liability protection than contractors.

Contractors

The IRS defines independent contractors as business owners or contractors who provide services to other businesses. Since independent contractors are self-employed, they are required to report and pay periodic estimated taxes if their income tax is higher than an amount annually predetermined by the IRS. Independent contractors are also not required to act in the best interest of their clients, provided contractual obligations are met. For example, mortgage brokers arrange financing for clients without necessarily considering their financial capacity to pay higher costs.

Regulation

According to the U.S. Department of Labor, the legal definition of an employee and independent contractor becomes confused by differing measures of identification across multiple state and federal laws. Additionally, not all regulations apply to both agents and independent contractors. An example of this is minimum wage requirements set forth by the Fair Labor Standards Act and applicable only to agent employees. In other cases, laws governing how specific work functions such as real estate transactions are performed apply to both agents and independent contractors.

Licensing

Both agents and independent contractors are often required to be licensed to sell specific products or services. For example, insurance agents and independent insurance contractors must have a Series 63 license if they wish to sell prepackaged financial securities such as mutual funds. Moreover, independent real estate brokers and real estate agents both need to be licensed to sell real estate. However, according to the National Association of Independent Real Estate Brokers, independent real estate brokers are not franchise agents.

About the Author

Austin Berry has five years' experience in online, contractual and academic writing. He has been published at HomeownersInsurance.org and TaxBox.org. He holds a Master of Business Administration in finance and marketing from the University of Missouri, and a Master of Arts and Bachelor of Arts with concentrations in the philosophy of science and philosophy from George Mason University.

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