The Dangers of Independent Contractor Travel Agent Misclassification
You may not think of this as important when finding a host agency, but making sure the host agency follows the independent contractor rules of the government is as important of a question to ask as 'how much it costs to join a host agency' or 'what the commission levels and commission split are'. (Our latest research reports can tell you the average commission split for both new and experienced advisors).
Whether you'll be looked at as an independent contractor travel agent or an employee in the eyes of the law is incredibly important to the success of your agency!
Why Should Misclassification Concern You?
If the host agency is audited and found to have misclassified their independent contractor travel agents, the fines and back-taxes add up to a huge price tag.
It's not pretty.
A New York Times article profiled a company that misclassed 18 workers and received a $328,500 penalty bill. Most host agencies have more than 18 home based agents working under them. (You can find the stats for the average number of independent contractors below, in our annual 2024 State of the Host Agency Address.)
Catch my drift? A host agency that isn't protecting themselves from misclassification could easily go bankrupt with fines this high.
Increased Audits
The government loses millions of dollars in taxes from misclassified workers. Since the government has continued to see record deficits, there has been a crackdown on independent contractor classification. You might remember the big employee/IC classification fight with Uber/Lyft in Calfornia?
There's been a lot of changes to IC classification rules the last few years. This is partly due to the fact that the Gig Economy and companies like Uber and Lyft, Instacart, etc. have drastically increased the number of ICs. They also tend to push the more traditional boundaries that were set up between ICs and employees.
Effective March 11, 2024, the Department of Labor rolled back some of the laws that were passed in 2021 that look at how to classify ICs. They're going back to the tried and true method of the 6-factor test/economic reality test, which essentially evaluates these things:
- Opportunity for profit or loss depending on managerial skill,
- Investments by the worker and the employer,
- Permanence of the work relationship,
- Nature and degree of control,
- Whether the work performed is integral to the employer’s business, and
- Skill and initiative.
Independent Contractor Classification
I wish I could tell you independent contractor classification is cut and dry, but it's murky waters. Not only is there is room for interpretation in the existing independent contractor laws, but these laws vary by state, which is to mention nothing of the federal government's independent contractor laws.
Your host agency should be well-versed in how to protect themselves and their agent network, so don't be afraid to ask. In this case, knowledge is power.
Being aware that this is even an issue and properly screening your host agency is the first step. The next step is to avoid any pitfalls by looking for major red flags. Be aware that you may not be an independent contractor if the host agency:
- Requires you work certain hours
- Requires you to work from a certain location
- Requires you work in a certain way
- Gives you benefits
Making sure your host agency has a written contract indicating that you are an independent contractor and which outlines your responsibilities is another important consideration for an agent. Check out our article on things to look for in your contract with your host agency!
Summary
If you have doubts about your classification, ask your host agency for more information or contact a travel industry attorney. This is definitely something you should move to the VERY top of your things-to-do list!
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