Brokers and agents, beware! Misclassifying employees as independent contractors has potential to bankrupt your business

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From Inman News –

“Protect yourself and your business

Here is a partial list of areas where you may be vulnerable as an agent or a broker. Since employment and tax laws vary from state to state, check with your CPA/tax attorney — as well as with an employment attorney — to determine whether any of the items below are an issue for you or your business.

1. Combination reimbursement models are a red flag

If you have someone that you pay both on a commission and an employee basis, this is a red flag for the IRS. For example, if you are a broker and you pay an agent to cover the reception desk on weekends, or if you run a team and you compensate a team member with a combination of hourly earnings plus commissions, you probably have an issue.

Many agents and brokerages have chosen to avoid this issue by compensating staff as either an employee or as an independent contractor, but not both. A particularly sticky part of this issue occurs when you are compensating the agent on commissions and they then compensate a team member as an employee. Is this a combination reimbursement schedule?

2. Do you supply tools and equipment to your agents or staff?

An independent contractor normally pays for his or her own supplies, materials and technology. For those who run a team or have teams in their offices, if the agent provides a team member with a computer, materials or other supplies, that person is probably an employee and will need to be compensated as such.

3. Required hours or office meetings?

Do you require your agents to attend your office meetings or to be available for floor duty? If so, you may be creating an employee situation. If you are running a team and require your team members to be present at times you set for them to prospect, hold open house, or to take incoming sign calls, especially if they have to be in your office, chances are that team member should be compensated as an employee.

4. A major issue for those using virtual assistance

I currently use a virtual assistant who manages my company. She has other clients. If she loses those clients and works only for our company, she would be considered an employee, even though she works out of state, works on her own schedule, has her own equipment and has met the classification of independent contractor for the last 16 years.”

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