Managing Producer Expenses

MANAGING PRODUCER EXPENSES

To gain control of non-compensation producer expenses-primarily expenses for automobile and client promotion-think about slightly increasing the base commission split you pay your producers. The auto and promotion expenses incurred by the producer can then be deducted from (netted against) the producer's commission compensation.

For example, if you now pay a 25% commission to producers on renewals, but also provide an auto or auto allowance and reimbursement for client promotion, think about increasing the renewal commission to 27.5% or 28% -- but deduct auto expenses and client promotion against the higher renewal commission.

By switching to a deduction-against-renewal commission, expense control is placed squarely on the producer rather than the agency. This can reduce conflict, and it's easier for the agency to budget a constant sales expense of 28%. Finally, to maximize tax deductions, the producer should submit monthly mileage reimbursement logs to the agency instead of getting an auto allowance.

When getting a flat monthly allowance, the producer must receive a 1099 form from the agency at year's end, but with mileage reimbursements, the agency gets a full deduction, and the producer doesn't have to declare the reimbursement as income.