What is the fundamental issue?
One of the thorniest questions that many businesses face is the appropriate classification of their workers as either employees or independent contractors. These classification issues are important because they govern responsibilities for remitting payroll taxes and also set out the terms for various employee benefits.
Real estate sales agents have a statutory provision (Internal Revenue Code Section 3508) that provides clear directives about how a real estate broker may classify his/her sales agents as independent contractors. The rules have been in place since about 1984. REALTORS® would oppose any erosion of Section 3508.
I am a real estate professional. What does this mean for my business?
Under Section 3508, brokers and sales agents can determine with certainty what their work arrangements are and can thereby ascertain the role of each with respect to payroll taxes and benefits. This certainty significantly reduces the exposure to sizable penalties that can be imposed on other employers who do not comply with the worker classification criteria the IRS has had in place for more than 30 years.
To be classified as an independent contractor, a broker and a sales agent must have a written agreement showing that the sales agent has a valid real estate license, that the sales agent is aware that he/she will be treated as an independent contractor, and that no compensation or remuneration can be based on hours worked, but rather is on a commission basis.
NAR would oppose any erosion of the statutory protections in Section 3508.
There appear to be no likely imminent changes for section 3508, the provision in the tax law that provides qualified real estate agents (among others) with a statutory classification as independent contractors. However, several legislative proposals have been introduced over the last few years that would change the worker classification rules for service providers who are not covered by section 3508.
Federal Taxation Committee
None at this time.
Issue summary - Federal Tax / Independent Contractor
Issue summary - Business / Worker Classification
Letters to Congress - Business / Worker Classification
Letters and Comments to Federal Agencies - Business / Worker Classification