Independent Contractor Lawsuits on the Rise!

Jul 09, 2019

Having an Independent Contractor Agreement signed every 12 to 15 months is a very important element of establishing that a real estate salesperson is an independent contractor and not an employee.  Improper classification of real estate salespersons can cause a number of tax and other legal problems that could run into thousands of dollars in fines, back pay, and other employment and accounting issues.

The Internal Revenue Service (IRS) and the Department of Labor (DOL) look at the amount of “control” a broker exerts over a real estate salesperson.  Although brokers must maintain a certain amount of supervision over their salespeople, there must be a balance where the broker does not exert the amount of control that would run afoul of the IRS or DOL guidelines.

  • For risk reduction purposes, consider the following:
  • Always have a written independent contractor agreement signed every 12 to 15 months
  • Don’t mandate meetings, administrative office duties or use of certain tools
  • Allow salespersons to work where, when and how they deem best
  • Don’t ever refer to your salespeople as employees in written material
  • Pay salespeople on commission only, and never on salary or regular fixed intervals
  • Don’t require salespeople to report to the office at certain times and days to answer phones
  • Make attendance at monthly meetings or training voluntary
  • Issue real estate salespeople 1099s, and NOT W2s
  • Do not withhold federal or state income taxes, including estimated taxes, social security, Medicare or any other applicable federal or state tax (unless required by law)

Real Estate Brokerages with Sales Associates practicing in the 5 boroughs of New York City must ensure their independent contractor agreements comply with a New York City Administrative Code requiring independent contractor agreements contain certain elements.  Improper wording in the agreement can lead to your independent contractor being classified as an employee! 

You can find sample independent contractor agreements, including one that complies with the New York City Administrative Code, at LiRealtor.com on Documents on Demand.