From RISMedia, Lesley Walker discusses the challenges of worker classification in the real estate industry. Lesley writes:
The fact is, when it comes to worker classification, the real estate industry is unique. Unlike a typical employer/employee relationship, an independent contractor largely maintains the control in the relationship. However, state real estate license laws run contrary to this principle. Pursuant to real estate license laws, brokers are legally obligated to supervise their agents, thereby requiring a broker to exercise control over his or her real estate salespeople. The regulatory structure of the real estate industry often makes it difficult for brokers to fulfill their obligations under the real estate license laws and adhere to employment and labor laws pertaining to independent contractors. But, there is good news.
Many state and federal laws recognize the unique nature of the real estate industry and have created specific carve-outs for real estate salespeople. For example, the IRS has a safe harbor that allows real estate salespeople to be treated as independent contractors for federal tax purposes, provided the following three conditions are met:
- The salesperson is a licensed real estate professional.
- A written contract exists between the parties that clearly states that the salesperson will not be treated as an employee for federal tax purpose.
- Substantially all of the salesperson’s compensation is directed related to their sales or other output, rather than the number of hours worked.
So how can you, as a broker properly manage your independent contractor relationships? First, know your state laws…
Read the full story at Policy Matters: Independent Contractor Status in Real Estate