For brokers who classify their real estate salespeople as independent contractors, having a written independent contractor agreement is a fundamental element of successfully managing the relationship. While a written agreement alone does not determine whether a worker is truly an independent contractor, it provides important protections for the broker and is often required under federal and state law tests used to determine independent contractor status. Courts also consider the existence of a written agreement when evaluating the nature of the relationship between the parties.

For these reasons, brokers should always have a written independent contractor agreement in place at the beginning of the relationship.

Recommended Provisions

Independent Contractor Relationship

The agreement should clearly state that the relationship between the parties is that of an independent contractor. It should specify that:

  • The agreement does not create an employment relationship.
  • The independent contractor is not an employee of the brokerage.
  • The independent contractor is not an agent of the company except as otherwise authorized under applicable law or the agreement.

Freedom From Control

Include language stating that the independent contractor:

  • Has the right to determine the hours necessary to perform their work.
  • Controls the manner and method of performing services.
  • Retains independence in carrying out their professional responsibilities, subject to applicable legal and brokerage requirements.

Nonemployee for Federal Tax Purposes

The agreement should expressly state that the real estate salesperson will not be treated as an employee for federal tax purposes. This provision is one of the requirements for meeting the IRS definition of a "statutory nonemployee" and supports classification as self-employed.

Commission-Based Compensation

Independent contractor salespersons should be compensated based on sales production or another performance-based measure rather than hours worked.

Commission-based compensation:

  • Supports independent contractor status.
  • Is a requirement for statutory nonemployee treatment under federal tax law.
  • Is frequently considered under state independent contractor classification tests.

Equipment, Supplies, and Expenses

The agreement should provide that the salesperson is responsible for their own business expenses related to providing services, including:

  • Computers
  • Phones
  • Office space
  • Vehicles

A key characteristic of an independent contractor relationship is the contractor's investment in the tools and equipment necessary to perform their work.

Insurance

The agreement should require the salesperson to maintain, at their own expense, any necessary insurance coverage, including:

  • Automobile insurance
  • Public liability insurance
  • Property damage insurance
  • Commercial general liability insurance

This provision helps reinforce the contractor's independence and responsibility for business operations.

No Employee Benefits

Independent contractors should not receive employee benefits. The agreement should clearly state that the salesperson is not eligible to participate in employee benefit plans or programs, including:

  • Health insurance
  • Workers' compensation benefits
  • Retirement plans
  • Vacation leave
  • Sick leave

This distinction helps support proper independent contractor classification.

Mandatory Arbitration and Class Action Waiver

Consider including a mandatory arbitration provision and class action waiver to help reduce the risks and costs associated with litigation.

Courts have upheld these types of provisions in litigation involving the worker-classification status of real estate salespeople.