Business mentor: Pitfalls on the path to making a sale

Q. We are a small, Auckland-based food manufacturing business supplying retail and wholesale markets nationally. As the business grows and greater demands are put on our time and ability to service the market, we recognise that we need help to sell to develop and service those markets. We are unable to employ a salesperson, either full or part-time, until the benefit of extra sales is realised. What are the practicalities of taking on a salesperson without a retainer, but with some form of commission as remuneration - to begin with at least? Is there a standard contract which could be applied to this circumstance?

A. Gilbert Peterson, Employers and Manufacturers Association, replies:

Taking on a commission-only salesperson who works exclusively for your business is one way to drive sales up faster than your present resources allow, but it may not be the best.

In general, you have two options. For both you'll need more professional advice, and you'll need to think how you want your business to develop in the longer term.

The options are either to employ someone who will sell only your products, or to contract with an agent who is already in business on their own account to represent your products alongside others.

For both options you need to be careful, for quite different reasons.

If the person you engage to sell your products is to work exclusively for you, regardless of whether he or she is commission-only or is paid a retainer, that person will be considered an employee of yours for the purposes of calculating entitlements for minimum wages, holidays and sick leave.

In seeking to word a contract to avoid these commitments, an employer will probably need professional advice. A standard agreement is unlikely to address your particular circumstances.

The trap is that the Employment Relations Act provides for the Employment Relations Authority or the courts to determine the real nature of the relationship between an employer and the contractor/employee.

If things went sour and a hearing resulted over the status of your salesperson, the real nature of the relationship may be examined to determine if it is a bona fide contracting arrangement, or an employer/employee relationship dressed up to look like a contracting relationship.

To do this the authority or court would apply a series of tests developed to determine its real nature.

A person employed as an independent contractor, though committed exclusively to your business, may be found to be an employee and you may end up copping some large, unexpected bills as a consequence.

A second option is to find an agent who is already in business on their own account representing and wholesaling a range of products, usually in the same category as yours.

One of these businesses may be keen to extend its range, though it may take time to find one whose terms are suitable and who is willing to take your products on.

An advantage of agency arrangements is that generally you don't have to pay them until you have been paid for the products of yours they have sold. A disadvantage is that an agency may legitimately want a longer term to apply to the agreement than you want to offer. They won't want to develop sales outlets for your goods only for you to take them over later.

You could find yourself locked into a business growth strategy that depends on representation by an agency whose business interests may not coincide with where you want to take your business.

You can contact Gilbert Peterson at the Employers & Manufacturers Association (Northern) on 09 367-0916 or email ema@ema.co.nz

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Answers courtesy of Business in the Community.