Independent contractor versus employee
Wednesday, April 3, 2013
By Charles S. Bonamer
ORRA class instructor, "Brokerage Management"
Most real estate brokers associate with salespersons as independent contractors, rather than employees. There are major difference between the two. Broker-salespersons, salespersons, and brokers are now considered professionals to coincide with broker protective legislation and are now subject to a five-year statute of limitations after discover of the facts for professional acts. Check the IRS website for updates.
I. It is least expensive for a broker to associates with independent contractors (statuatory non-employees). While the broker loses the opportunity to control and direct the behavior of the associates, the Florida Real Estate Commission holds the broker responsible for acts of all licensees.
A. The associates is responsible for payment of quarterly estimated income taxes in addition to filing a Schedule C (profit or loss from a business). Independt contractors do not receive unemployment benefits.
B. Brokers do not withhold FICA fees, IRS taxes, or state employment taxes.
C. Brokers have limited authority to direct the activities of the independt contractor.
D. The IRS has issued guidelines for the real estate brokerage industry.
- The independent contractor contract should be entered into on a yearly basis.
- The contracts available below were negotiated by the National Association of REALTORS® and the IRS.
- Day-to-day working conditions must reflect terms of these contracts.
- According to the Tax Equity and Fiscal Responsibility Act of 1982, a statutory non-employee (independent contractor) must satisfy the following three guidelines:
- A license.
- A written agreement with the broker.
- Compensation must be based on output, not hours worked.
II. To associates with salespeople as employess give a broker, or manager, more authority to control their activities.
A. Federal withholding and FICA fees must be deducted from commission payments.
B. The company must also match FICA fees in addition to paying an assessment to the state unemployment fund. Additional fees may be payable if former employees receive benefits from the fund.
C. Paid vacation time, overtime wages, health and dental insurance, and other benefits create additional expenses for the company. Compensation packages frequently require adjustment.
III. Some other distinctions between independent contracts and employees include:
|Marketing||Pays||Does not pay|
|Salary or draw||No||Yes|
IV. Research indicates that some brokers cannot command respect from associates who are independent contractors. Changing to employee status does not correct this obstacle. The manager may well be the problem.
View sample independent contractor agreement between broker and salesperson
Charles S. Bonamer is the instructor of ORRA’s Brokerage Management course, which is offered monthly and worth three continuing education credits. Class dates, more information, and registration are available via the online ORRA Education Calendar.
Reprinted from the Florida Real Estate Brokerage Management manual, by Charles S. Bonamer. Copyright ©1987-2012 by TRANS-EQUITY, Inc.