How to Structure Broker Relationship with Agents and Staff
“An investment in knowledge always pays the best interest.”
Benjamin Franklin, The Way to Wealth: Ben Franklin on Money and Success
This is the second of three articles on how to properly classify agents and assistants as independent contractors or employees; we learned in the first that to comply with ADRE rules and maintain agents’ independent contractor status, a broker must supervise and control where required, but stop there. Maintain too much control and the agent you assumed was an independent contractor may be your employee.
This short quiz tests your knowledge on what constitutes a proper independent contractor relationship between a broker and an agent or staff; the answers provide tools to improve your policies and avoid mistakes:
1. A real estate agent is an independent contractor if there is a written independent contractor agreement that details the broker’s appropriate — not excessive — amount of control over the agent.
TRUE or FALSE?
2. It is best to let an agent have control over whether the agent will receive paid for office space, administrative services, sales leads, and training in order to maintain the agent’s independent contractor status.
TRUE or FALSE?
3. Non-real estate agent assistants and staff can be independent contractors or employees depending on how their work is structured.
TRUE or FALSE?
Let’s see how you did:
No. 1 is false. Even if a broker has the “perfect” independent contractor agreement which details the right amount of control over its agents, the agents may still be deemed employees if in practice the broker exercises more control. For example, some brokers have policies outside their independent contractor agreements which require agents to follow certain practices and procedures (e.g. attending training and meetings; reporting; reimbursements; etc.). While any one practice may not convert the agent to an employee, the more control the broker exerts the more likely the agent will be found to be an employee. To be sure, if your agency is sued or audited, the plaintiff’s lawyer and IRS agent will look for every fact (aspect of control) to support their case
No. 2 is false. Regardless of who decides, when a broker provides paid for office space, administrative services, sales leads, and training to an agent, it is more likely that the agent we be deemed to be an employee.
In 2016, the Arizona Court of Appeals decided a case where an agent’s car crossed the center line and struck another vehicle as the agent was returning home from a sales appointment; the other driver died (as did the agent). The other driver’s surviving spouse sued the broker on the basis that it was the agent’s employer. In deciding that the agent was not the broker’s employee, the court noted that the agent:
was not required to keep specific hours, attend sales meetings, or meet any sales quotas, and although [the broker] provided optional office space, administrative services, sales leads, and training, [the agent] was charged a monthly fee for these services. There is no dispute that [the agent] chose the territory where he worked, created his own advertisements, prospected for clients, drove his own car, worked from his home office, worked purely for commission, and set up his own appointments.
Read here for more information on why the court ruled that the agent was not an employee. http://hrlawinsider.com/on-the-cutting-edge-new-arizona-case-addresses-company-liability-for-the-torts-of-independent-contractors/
No. 3 is true. Non-real estate agent assistants and staff can be independent contractors or employees depending on how their work is structured. Here are factors that courts and the IRS review when deciding the issue:
- Does the company have the right to control when, where and how the worker performs the job.
- Does the work require a high level of skill or expertise.
- Does the employer furnish the tools, materials and equipment for the job.
- Is the work performed on the employer’s premises.
- Is there a continuing relationship between the worker and the employer.
- Does the business have the right to assign additional projects to the worker.
- Does the business set the hours of work and the duration of the job.
- Is the worker paid by the hour, week, or month rather than the agreed cost of performing a particular job.
- Does the worker hire and pay assistants.
- Is the work performed by the worker part of the regular business of the company.
- Is the worker engaged in his/her own distinct occupation or business.
- Does the company provide the worker with benefits such as insurance, leave or workers’ compensation.
- Is the worker considered an employee of the company for tax purposes (i.e., the company withholds federal, state and Social Security taxes).
- Can the company discharge the worker.
- Do the worker and the company believe that they are creating an employer-employee relationship.
Apply these factors to your brokerage and/or other business. Be sure the answers align with how you have classified your agents and other workers. And remember, “An ounce of prevention is worth a pound of cure.” Benjamin Franklin
Bourque Law Firm, P.C. is focused on helping businesses, human resource professionals, and individuals succeed. Art Bourque is an AV rated attorney who has been practicing employment law, commercial litigation, and tort litigation for 27 years. A Dean’s List member each semester of law school and moot court winner for best oral argument in his law class, Mr. Bourque has continued to excel as a professional with a simple formula: working hard.