From JoAnne Poole, JoAnne discusses the classification of realtors as independent contractors.
So it’s critical that all of us, brokers and agents, know and adhere to state and federal law. Even unintentional misclassifications can incur substantial costs in taxes, fines and penalties.
A few key things to remember:
- The real estate industry is fortunate because, in general, classification of real estate licensees as independent contractors is codified in both federal and state law. Because state real estate laws require brokers to supervise agents, and this requirement conflicts with the standard definition of an independent contractor as stated in labor laws, the industry has been afforded certain “statutory carve outs.”
- About 22 state real estate laws specify that brokers can treat their agents as independent contractors while simultaneously supervising them.
- Approximately 29 state workers’ compensation laws exempt agents from their definition of an “employee,” thereby also exempting brokers from having to pay workers’ compensation.
- On the federal level, the IRS states that real estate agents are “statutory nonemployees” if they are licensed, receive payments that are largely tied to their sales or other output rather than hours worked, and have written agreements that stipulate they will not be treated as employees for federal tax purposes.
NAR® supports a broker’s right to choose whether to classify real estate salespeople as employees or as independent contractors. But it also encourages members to review their states’ existing labor and employment laws, as well as real estate statutes, to determine whether they adequately ensure a brokers’ ability to classify real estate agents as independent contractors. It is better to be safe than sorry, especially when some states are silent on the issue.
Read the full story at Independent Contractor or Employee: Laws and How They Apply to REALTORS®