A stricter auditing process by IATAN during travel agencies’ annual recertification process has many host agencies grumbling, as they spend hours doing paperwork to comply with new demands.
“IATAN has changed. Some funky things are going on over there,” one travel agency executive told Travel Market Report.
IATAN, a department of IATA, accredits travel agencies and individual travel agents and issues the ID cards that many agents use as professional credentials, including to receive supplier discounts.
The right designation
The issue revolves around hosted independent agents who have set up their businesses as LLCs, S-corporations or sole proprietorships, rather than operating under their own names.
According to agency executives, within the last year or so, IATAN has begun scrutinizing how host agencies classify their independent contractors during the annual recertification process. As business entities, such agents should be listed by host agencies under IATAN’s “independent contractor business” category, rather than as individual agents.
“Heads up about this change,” said the agency owner. “They’re auditing hosting agencies and cracking down, expecting agents to register as independent contractor businesses,” or ICBs.
None of the sources who spoke with Travel Market Report wanted their name used, lest they offend IATAN. “I want to stay out of their path,” one said.
Making a list, checking it twice
During annual recertification, IATAN asks hosts to provide 1099 tax forms for independent agents on the hosts’ books. IATAN uses the 1099s to verify that individual agents sell enough volume to be eligible for an IATAN card.
What’s new, according to agency executives, is that IATAN has begun checking that the names on 1099s issued to independent agents are the same as the names on a host agency’s list of agents.
If the 1099s are issued to a business entity formed by an independent agent – an LLC, S Corporation or sole proprietorship – rather than in the agent’s own name, IATAN reclassifies that agent as an independent contractor business.
What’s in a name?
As one agency executive explained it, “They cross-reference the name on the [host agency’s] list with the name on the 1099.
“If the name was ‘Mary Jones’ on the list and on the 1099 it was ‘Mary Jones Travel,’ they remove that person from the list, because in their eyes the agent wasn’t entitled to be an IC; they had to set up as independent contractor business.”
The host agency then has to provide documentation to recertify the agents. In the meantime, the affected agents lose their IATAN cards, if only temporarily.
IATAN responds, sort of
IATAN declined Travel Market Report’s request for an interview, but a spokesman confirmed, via email, the organization’s policy on the classification of independent agents.
“If an agent decides to form a business entity (i.e. Sole Proprietorship, S Corporation, Incorporation, Limited Liability Company, Limited Partnership, Partnership, etc.) he or she is no longer considered an individual for IATAN accreditation purposes,” wrote Perry Flint, head of corporate communications for the Americas for IATA.
Flint declined to discuss IATAN’s fee structure, saying that “all the information is available on the website or in the relevant documentation provided for accreditation applicants.”
For individual agents, reclassification as an independent contractor business means they now have to pay a $95 annual fee to IATAN, in addition to the $30 fee (or $35 by mail) all agents pay to renew their IATAN cards, according to the fee schedule on IATAN’s website.
“I think they’re trying to rake in more money,” said one industry member.
But what sounds like a small annoyance and a small fee differential for a single independent agent is a big annoyance for host agencies.
For host agencies, IATAN’s heightened scrutiny of independent contractor agents has made the annual recertification process time-consuming and tedious.
One executive of a large agency with a sizable hosting division said the firm’s human resources person spent six to eight weeks going back and forth with IATAN in an audit that involved a two-year look-back period.
Another executive whose firm hosts hundred of independent contractors said it took an employee several hours a day -- for about a month -- to comply with IATAN, including by sending the accrediting organization “boxes of documents.”
“What’s new this year is the type of detail needed, the validation of the names on the [host agency] list against the 1099s, and the interpretation and definition of ICB. What’s really changing is the enforcement of the definition of independent contractor businesses,” the executive said.
One industry member commented that it shouldn’t matter to IATAN how an independent contractor has structured his or her business. “If I’m a one-man band, whether I’m incorporated or not should have nothing to do with IATAN,” she said.
But legally, IATAN is correct, said travel industry attorney Mark Pestronk.
If an independent agent forms a legal entity and that legal entity contracts with a host agency, the independent contractor becomes an employee of the S corporation or LLC that she or he has established. “An employee of the LLC by definition cannot be the entity itself,” Pestronk explained.
Still, perhaps a compromise is in order, Pestronk suggested.
“The fairer thing would be to lower the fee for those LLCs and corporations that have an individual owner,” he said. “But I’m not surprised that IATAN has not done that, because they are in it for the money.”
More clarity needed
Even if IATAN’s designation of independents who have formed legal entities is fair – if one cannot claim to be one thing to the IRS and something else to IATAN – agents said that IATAN needs to be clearer about its policies.
“I don’t think these rules are explained very well on the IATAN website; it’s buried on the site. It’s like they are making this stuff up as they go along,” grumbled one agency owner.
Above all, she said, “my concern is that IATAN is not consistent about how it applies the rules.”
Another was less forgiving. “IATAN’s reason for existence these days is to sell credentials, just like any other card mill,” she said.
Marilee Crocker contributed to this report.