NAR has been educating policymakers on the importance of real estate professionals’ ability to be classified as independent contractors to the real estate industry, homeowners across the country, and to boosting the economy.
The ability to work as an independent contractor is recognized and protected under many state and some federal laws (see 26. U.S.C. §3508 and state laws). However, litigation and new federal and state legislation continue to threaten workers’ ability to be classified as independent contractors, including many real estate professionals. More specifically, NAR has communicated the concerns with adoption of the “ABC test” used for classifying workers. Should new federal standards adopt this test, there would be states that would mirror that action and also encourage more litigation challenges that could impact real estate professionals’ independent contractor status.
In recent years, there continues to be interest in moving federal legislation that incorporates the “ABC test” for classifying independent contractors. Under this test, all of the following must apply: (a) an individual is free from direction and control applicable both under the contract for the performance of service and in fact; (b) the service is performed outside the usual course of business of the employer; and, (c) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Based on these factors, the state statutory supervisory and control requirements imposed on brokers over agents make it challenging to classify real estate professionals as independent contractors.
In May 2021, the Department of Labor (DOL) withdrew to delay the final independent contractor final rule that was set to go into effect that year. Earlier that year, the Department proposed delaying the effective date of the rule following a memorandum issued by the Biden Administration requesting federal agencies to review or delay certain pending regulations. NAR commented on this delay, requesting that the effective date not be delayed, as the regulation provides needed clarity and certainty for how an employer may classify a worker. While these regulatory modifications have no direct impact on real estate professionals’ classification under the Internal Revenue Code for federal tax purposes, it was anticipated that the DOL would effectively delay the rule and eventually modify or rescind it, potentially adding more challenging worker classification standards, especially if the ABC test was to be incorporated.
In January 2024, the U.S. Department of Labor issued the final independent contractor rule assessing how workers should be classified under the Fair Labor Standards Act (FLSA) given the department’s concerns with worker misclassification. The FLSA is the law that sets standards for minimum wage, overtime pay, recordkeeping, youth employment standards and other rules impacting employees in the private sector. The final rescinds the 2021 independent contractor rule and applies a multi-factor economic reality test for determining whether workers should be classified as independent contractors or employees. Learn more.
Independent Contractor Status Resources:
NAR has put together some resources to communicate the importance of this issue to policymakers:
- U.S. Department of Labor Issues Final Independent Contractor Rule (January 12, 2024)
- NAR Advocates for Worker Classification Clarity (October 25, 2023)
- NAR Supports New Legislation Protecting Independent Contractor Status (September 19, 2023)
- Bill Aims to Clarify Independent Contractor Status (September 14, 2023)
- Independent Contractor Status Underpins Your Business (June 30, 2023)
- NAR Washington Report: NAR Comments on DOL's Proposed Independent Contractor Rule (December, 2022)
- NAR Hot Topic Alert: Independent Contractors in the Real Estate Industry (August, 2021)
- NAR Issue Brief: Real Estate Professionals Classification as Independent Contractors
- Independent Contractor Status Frequently Asked Questions
- NAR Focus Brief: Independent Contractors and Real Estate Exemptions (March 4, 2021)
- NAR Comment Letters to the Department of Labor on the Independent Contractor Rule
- IRS Website: Guide to Worker Classification (November 9, 2020)
- State Laws: Independent Contractor Survey Table (June 20, 2020)