If you are new to the real estate industry and being self-employed, you need to understand the difference between working as an employee and working as a real estate agent. A licensed real estate agent is hired as an independent contractor. What does this mean and what is the difference working as an employee or independent contractor?

Employee
An employee usually works at the employer’s place of business and the employer controls (or has the right to) the how and when an employee performs his job. The employee must follow the directions and polices implemented by the employer. An employee may be paid hourly, salary or commission and will receive a W2 at the end of the year. The employer may offer benefits, paid time off and retirement plans to employees. The employer must pay workers compensation and deduct payroll taxes according to law.

Real Estate Agent as Independent Contractor
A real estate agent working as an independent contractor is a self-employed individual working under an independent contractor agreement and is not an employee. An independent contractor controls how the work is accomplished. A real estate agent may use his own business name and may work out of his home office. The agent is independent of the real estate company that employs him, but he must follow the terms and conditions of the independent contractor agreement. 

A real estate agent is responsible for paying their own quarterly taxes. They will receive a 1099 at the end of the year instead of a traditional W2 that an employee would receive. Real estate agents have to pay full social security taxes and are not eligible for unemployment.

Unlicensed Assistants
Unlicensed assistants must be hired as employees. Licensed assistants are usually hired as independent contractors.

IRS Keeps it Real
The IRS is coming down on companies who hire an individual as an independent but put them in an employee situation. There are 3 main questions to ask to determine if an employment situation is considered to be an employee or independent contractor: 
1.  Does the company control or have the right to control how (means and methods) and when (time at work) the person does the job?
2.  Does the company control the business aspects of the job, how the worker is paid, who provides tools/equipment, etc?
3.  Are there employee benefits, vacation time, retirement or contracts? Will the employee remain with the company when the job is finished?

IRS.gov is a great resource that explains all the rules for federal guidelines regarding independent contracting. You will also want to check with your state department to see if they have additional rules. 
Business.gov is an official business link to the U.S. Government. Find more great information on independent contracting at this website.
Lectlaw.com is a Law Library. Click on this link to read its description and information on independent contracting. 

Article written by Cindi Lewis

This entry was posted on Friday, March 12th, 2010 at 2:11 pm and is filed under Real Estate Business, Real Estate Education, Real Estate Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.