The real estate industry went to lawmakers and requested some special treatment when it came to independent contractor status. The laws at the time—and they still do—had a list of standards that were pretty rigid and made it very difficult to operate a real estate brokerage without agents being employees.
Know the Rules
Real estate agents and brokers enjoy a special IRS classification as statutory independent contractors. Keeping apprised of the rules regarding that status is important in the changing world of real estate services, because new business models and compensation methods may result in classification as an employee.
As more agents are recruited into discount brokerages with business models that pay salaries for base income, there could be problems with meeting the tests for independent contractor status. Both the broker and the agent need to know precisely what their relationship is, and that some sort of document or contract states that relationship.
Many people, unfortunately, enter real estate thinking that it's all about sales; you're selling houses. Really, real estate is a service business, with a lot of legal and tax-related details involved. Not treating these details seriously can get you into trouble.
The Sales Associate Must Be a Licensed Real Estate Salesperson
This seems self-explanatory, but the law ensures that real estate brokers do not place assistants or agents-in-training in the status of independent contractor. This is important, as the real estate professional who is licensed and enjoys independent contractor status should always remember that this means that they are a business, and they own the business.
There is nothing wrong with hanging your license with a broker, and in many cases, it is required. But when you're taking advantage of the services and offices of the broker, still remember that you are your business. If they offer you website space, take it, but establish your own online presence with a website and/or on social media as soon as possible. You never know when you'll want to go out on your own or move to another brokerage.
Income Must Be Related to Sales and Not Hours Worked
If a broker has a licensed assistant but pays that person by the hour or bases compensation on hours worked in some way, that person cannot be an independent contractor. If you are a part-time agent and are doing other jobs for the brokerage on an hourly or salaried basis, it's likely that independent contractor status would not apply, as the majority of your compensation would not be from sales-related activities.
Keep accurate accounting records and document all commissions versus other income from the brokerage. Actually, the cleanest deal would be to only get commissions and possibly some expense reimbursement now and then, but not often.
There Must Be a Written Independent Contractor Agreement
A written independent contractor agreement between the real estate agent and the broker would state the fact that the agent is to be treated as an independent contractor for federal tax purposes.
Note other state laws that could base the independent contractor status on the common law for purposes of unemployment compensation and workers' compensation. In those states, the broker must meet the more restrictive requirements, whichever they are.