THE BROKER/AGENT AGREEMENTS & RELATIONSHIPS
The relationship established between a broker and sales associate may fall into one of three categories: employee, common-law independent contractor or statutory independent contractor.
Historically, the determination of whether a sales associate was an employee or independent contractor was made under common law rules.
Under the common law, a sales associate generally is deemed to be an employee if the broker has the right to control and direct not only the result to be accomplished, but also the details and means by which the result is accomplished.
Thus, the most important factor under the common law is,
the degree of control or right of control which the broker has over the manner in which the sales associate operates.
While under common law, the presence or absence of a right of control is said to be the sole consideration in determining whether the status of a salesperson is that of an employee or independent contractor, twenty factors are taken into consideration by the Internal Revenue Service.
For example, the form in which a salesperson receives his compensation is taken as a significant indicator of whether that salesperson is an employee or an independent contractor, even though the manner of compensation would appear to have little, if any, relation to the manner in which the salesperson executes his responsibilities.
Other examples of factors not directly bearing upon control that are considered include the assumption of business expenses and insurance coverage by the broker. While many factors are applied, no one factor is determinative of whether a salesperson is an employee or an independent contractor. Rather, many factors are weighed and evaluated in light of one another before a conclusion can be reached.
Due in part to the difficulty that frequently arose in the application of these factors by the Internal Revenue Service, Congress in 1982 created a new category of independent contractor for federal tax purposes known as a “statutory non-employee” or “statutory independent contractor.”
In order to qualify as a statutory independent contractor, the three (3) following criteria must be met:
1. The sales associate must be a licensed real estate agent;
2. Substantially all of the sales associate’s remuneration for the services performed as a real estate agent must be directly related to sales or other output rather than to the number of hours worked;
3. A written agreement must exist between the sales associate and the person for whom he works, which agreement must provide that the sales associate will not be treated as an employee with respect to such services for federal tax purposes.
The three-part statutory test addresses the independent contractor issue for federal tax purposes only. The statute does not control whether a sales associate is an employee or an independent contractor under the various state laws governing worker’s compensation, unemployment compensation or state income taxation. These determinations continue to be governed by state statute or judicial decision.
If a salesperson is a statutory independent contractor for federal tax purposes but a common-law independent contractor for state tax purposes, the broker must adhere to the standards applicable to the most restrictive of the two types of relationships which, in most instances, will be that of the common-law independent contractor.
A broker should decide the manner in which he wishes to operate his real estate business and then select the type of broker/agent relationship best suited to that framework. The broker must remember that his office operations and treatment of specific agents should be consistent with the type of relationship selected.
Written Instruments Between Broker & Salesperson
Two major written documents govern the relationship between brokers and their salespeople. One is the operations manual; the other is a contract or agreement between a broker and the individual members of the sales staff.
The operations manual is the written instrument that provides guidance to salespeople who are independent contractors and directives to employee salespeople and other employees.
The written contract between independent contractor salespeople and the broker spells out the salesperson’s rights and obligations. It also enables the broker to discuss problems in particularized terms, minimizing the risk that independent contractor status will be lost through inadvertence and misunderstanding. Contracts may also be written to cover the relationship between brokers and salespeople, but these are less common.
This module examines the need for and content of both types of written instruments, what they can and cannot accomplish and/or control, and the wisdom of having legal counsel in all contractual matters.
MUTUAL RESPONSIBILITIES MUST BE CLEARLY SPELLED OUT
People in real estate sometimes feel that their offices are unlike those of other sales organizations because the relationship between management and staff is different in this business. This is true for the most part. However, to use this as a reason for not having modern management controls and techniques is illogical.
On the contrary, the unusual relationships in real estate indicate an even greater need for good management. It seems basic that brokers and salespeople should have a clear understanding of what to expect from each other and the conditions under which each will function for their mutual benefit.
That understanding is usually spelled out best by a contract and implemented by an operations manual.
Any question about how large a company must before it should have written policy and procedures can be put to rest because the operations manual is probably more important for the small office than for the large one. This is true because in a small office the broker often also lists and sells. The likelihood of policy and procedures problems increases when the broker is wearing two hats. The broker could conceivably be involved in a disagreement with a salesperson and be expected to judge himself or herself—an almost impossible situation.
PURPOSES OF AN OPERATIONS MANUAL
Just as brokers are charged with winning the approval, respect and good will of many groups outside the company, so they must establish and maintain good public relations among their employees and salespeople. A good operations manual is a great aid in this regard.
Many brokers practice management by crisis and not the wiser method of management by objectives. In the latter, establishing a written policy is necessary to set the pace in a company large or small. It should also reflect the company’s strategic plan objectives.
What the Manual Should Be
A properly written manual is not easy to compose and is difficult to make complete enough to cover every situation; further, it is often subject to interpretation on even the items included. These are arguments against having written policy. But the benefits far outweigh the negative factors.
The manual should:
provide a clear understanding of the relationship between broker and salesperson, management and employees and the relationship of administrative functions and sales functions;
permit the anticipation of and resolution of controversies before they arise;
stabilize both management and sales as it builds confidence that management as well as the salespeople know the rules by which the game is to be played;
prohibit favoritism since all must operate within the framework of the manual’s predetermined rules and guidelines; and
provide stability of organization and permit the staff to function effectively in the absence of management.
The alternative to a written operations manual is to have the policy statement in the broker’s head; and when the broker is not there, it’s not there. What’s more, the broker might forget it.
Uses of the Manual
The operations manual has many uses. Besides setting forth the rules under which the business operates, it serves to back up management decisions. It becomes the uninvolved “third person” that is sought out to give an unbiased opinion on the matter under consideration.
It is a valuable aid in recruiting, interviewing, selecting and/or hiring and retaining good coworkers. In recruiting, the prospective salesperson can be told that the company has a written statement of policy. In interviewing and selecting, the manual can serve to let the prospective salesperson know what he or she can expect and the framework within which work is done in the company. Fear of the unknown is a great obstacle to success in the sales field.
A good, clear statement of policy helps to give the prospective salesperson a feeling of security. It is important that these facts are all understood before a contract is signed or a person is employed.
In training new salespeople, the operations manual is an essential tool. A specific period of indoctrination should be spent with each new salesperson covering every aspect of the manual in detail. If no other formal training is given by the broker, the manual at least serves to give new salespeople the orientation they need.
Sales meetings present a particular challenge to the average broker, and the manual becomes a priceless tool in making such meetings meaningful. A review of one item of the manual each week will pay valuable dividends in communication, feedback and understanding between all members of the team.
Parts of some operations manuals are concerned with the salesperson’s liability in certain seasonal changes, conditions under which property is shown or the problems of unoccupied properties. It is important to review these matters regularly, and the manual is the reminder to do it.
One thing that should be avoided in the use of the operations manual is getting the public involved. Many of the problems between salespeople involve the public. But while the public is not concerned with a broker’s internal policies, they might turn salesperson against salesperson by favoring one salesperson in a dispute. Therefore, brokers should bring in the client to determine the facts only as a last resort and then exercise great discretion.
There are some things an operations manual is and some things it is not. It is a statement or declaration of the company business philosophy, procedures, rules and regulations, and generally it will spell out what is expected of salespeople in their day to day activities as well as what they can expect from the company. It can include an organizational chart and job descriptions. It should be a viable tool, a constitution and a declaration of interdependence.
It should not be a contract and should not be interpreted as being under the law of contracts. For example, the broker-salesperson agreement that is a contract would spell out the commission split. The operations manual would describe the procedure in the event of a dispute between salespeople about commission splits.
CONTRACTS AND AGREEMENTS
The threshold question that must be answered before any consideration can be given to the form and terms of contracts or agreements between a broker and a salesperson is whether the salesperson will be an employee of the broker or will be affiliated with the broker as an independent contractor. The answer to this question will depend on a wide range of considerations:
• The degree of control that the broker desires or needs to exercise over the salesperson
• The type of work in which the salesperson will be engaged
• The personal and professional qualifications of the salesperson
• The nature of the broker’s business and the techniques the broker uses to project himself or herself to the public
• The type and terms of the compensation arrangements offered by the broker and by competitors
• The legal liabilities and rights accruing to the broker and salesperson under each status
There is no “right” answer as to whether or not salespeople should be employees or independent contractors. On the contrary, any effort to generalize with respect to the proper status of salespeople can be dangerous, if not disastrous, for the broker.
This is because there is no such relationship as an “independent contractor employee.” A salesperson may be an employee or an independent contractor but may not be both simultaneously. When brokers misconceive the true relationship between themselves and their salespeople, they fail to recognize and fulfill the legal obligations which are attributable to that relationship.
Every broker must appreciate that the employee relationship is not legally interchangeable with that of independent contractor. Nor is one superior to the other in all cases. Employees enjoy many rights denied by law to independent contractors, and independent contractors have legal rights not available to employees. This gives them greater flexibility when it comes to determining or changing responsibilities or terminating an employee.
It is uncommon for employers to enter into a contractual relationship with employees. Most employers prefer to have an at-will relationship with their employees. By electing a contractual relationship both parties tend to restrict themselves, as duties and responsibilities are included in the contract or are presumed. However, for independent contractors, a contract is indispensable, even though the courts weigh practices and activities more heavily than the language of the contract in determining the relationship.
Employee versus Independent Contractor
(We will go into more detail on the next page.)
How associates are compensated, how they pay and report taxes, and whether the broker has the right to control their activities are the key issues which help establish whether a sales associate is viewed as an independent contractor or as an employee.
Most employees receive wages based on the number of hours they work. In contrast, independent contractors receive compensation based only on their production (i.e., commissions for sales, listings and rentals).
Another factor involves reporting taxes. A broker withholds taxes from an employee’s paycheck and forwards those taxes to the government.
A broker does not withhold taxes from an independent contractor’s income—independent contractors are responsible for paying their own taxes.
The last key issue involves the broker’s right to control activities.
A broker may exercise control over the activities of an employee or a statutory independent contractor without jeopardizing the salesperson’s status.
However, a broker may not exercise control over a common law independent contractor’s activities, such as attending training seminars or participating in floor duty.
Types of Independent Contractors.
(more detail on next page.)
There are two types of independent contractors: common law independent contractors and statutory independent contractors.
The statutory independent contractor status was created in 1982, when Congress added to the Internal Revenue Code a three-part test to determine the status of a real estate salesperson. One major difference between common law independent contractors and statutory independent contractors is that brokers can control the business activities of statutory independent contractors but not those of common law independent contractors.
Under federal tax laws, statutory independent contractors must have a current real estate license, and at least 90 percent of their income as a licensee must be based on production. The statutory independent contractor also must have a written contract with the broker. That contract must contain the following clause: “The salesperson will not be treated as an employee with respect to the services performed by such salesperson as a real estate agent for federal tax purposes.” These final four words are very important as they can limit the scope of matters for which the salesperson is an independent contractor.
For purposes other than federal tax such as unemployment taxes or worker’s compensation insurance the salesperson may be considered an employee. Also, unless the state has adopted language similar to that of federal law, the salesperson may be an employee for state tax purposes.
In examining the differences between whether an employee, statutory independent contractor or common law independent contractor relationship exists, there are various indicators that have come to be recognized as relevant considerations. While a comprehensive and all-inclusive enumeration of such considerations is impossible, those that have been recognized by the courts as among the more significant include the following.
No common law independent contractor may be required by the broker to attend sales training, instruction and indoctrination courses. If the broker believes training and indoctrination courses are indispensable for an untrained or inexperienced salesperson, the broker should make this person an employee. This does not mean that the broker may not make available training courses, seminars and other education opportunities that the independent contractor salesperson is free to attend or not.
Hours of Work
A broker may not control the hours of work of a common law independent contractor salesperson. A requirement that a salesperson accept floor time assignments from the broker is not consistent with the independent contractor status. For this reason, assignment of independent contractor salespeople to fixed hours or days of work at a model home site seriously endangers their status. Similarly, a requirement that an independent contractor salesperson participate in weekly open house caravan tours is impermissible.
Priority of Assignments
If the broker has the right to interrupt the work of a salesperson or otherwise set the order of that person’s services (by, for example, requiring the salesperson to work on certain listings or clients in preference to others), the salesperson could well be deemed an employee or statutory independent contractor. The broker cannot reserve first call on the time and efforts of the common law independent contractor salesperson.
In addition, quotas related to how an independent contractor does business (number of floor hours, number of prospecting calls) are inconsistent with the status of common law independent contractors. However, an independent contractor may be terminated for failing to achieve a production quota.
A broker may require employee salespeople to wear distinctive articles of clothing, name tags and to otherwise identify the firm name on their personal vehicles.
No such requirement is appropriate for independent contractor salespeople. Moreover, it would be inconsistent with the independent contractor status for a salesperson to be given a title commonly recognized as signifying employee status.
For this reason, independent contractors should not be designated by such titles as “vice-president,” “sales manager” or “sales supervisor.”
License Fees and Dues
A broker may not pay the license fees or membership dues of independent contractor salespeople although he or she is free to pay those of employees and statutory independent contractors.
Independent contractor salespeople are responsible for paying their own automobile and transportation expenses and other expenses they incur in obtaining and selling clients.
The broker may not reimburse such expenses as he or she may do in the case of an employee or statutory independent contractor.
The requirement that independent contractor salespeople pay their own expenses does not mean that the broker may not make available space, secretarial and telephone service in the broker’s office and business cards, forms and stationery on which the broker’s name appears.
The broker may not, however, pay or reimburse expenses attributable to an office that the salesperson maintains outside of the broker’s premises.
Common law independent contractors are not entitled to sick pay or to participate in the broker’s pension and profit sharing plans, wage continuation plans, health and accident insurance plans or qualified group insurance programs unless permitted by the broker to pay premiums to participate in group health insurance. Inclusion of a salesperson in such programs or plans is tantamount to an admission by the broker that the salesperson is an employee because such programs or plans, to the extent they are qualified under the Internal Revenue Code, are limited to employees.
To include independent contractor salespersons in such plans and programs is to expose them to disqualification. Similarly, an independent contractor salesperson’s vacation schedule may not be subject to the control of the broker. On the other hand, an independent contractor is entitled to establish his or her own retirement plan as a self-employed person. To do so reinforces his or her status as an independent contractor. Statutory independent contractors may receive these benefits, but they may not exceed 10 percent of the salesperson’s total income from real estate.
Taxes and Social Security
All independent contractors pay estimated federal taxes on a quarterly basis, and they make self-employment compensation payments using form SE in lieu of
Social Security payments. Brokers must provide a form and withhold Social Security from any non-production income.
Brokers also must withhold federal and state taxes for employees, as well as providing W2 forms and contributing Social Security payments for them. State tax treatment of statutory independent contractors varies from state to state.
Reports and Procedures
While a broker may require employees and statutory independent contractors to adhere strictly to the office operations manual, this degree of control is impermissible with common law independent contractor salespeople.
The operations manual constitutes mere guidance to the independent contractor salesperson, and this fact should be specifically stated in the manual if it is to be distributed to such salespeople.
Reports by independent contractor salespeople, except as to listings obtained, sales made and information necessary to permit the broker to record and close transactions and comply with local, state and federal laws, should not be made mandatory.
At the same time, the broker is free to provide such cooperation and advice as the independent contractor salesperson requests concerning the efficient and effective conduct of his or her work.
DETERMINING THE PROPER RELATIONSHIP
Only the broker can determine whether it is possible to function effectively with the limited degree of control required to preserve the common law independent contractor relationship. In making this determination, however, the broker must consider the experience and personality of the sales applicant.
If the applicant is experienced, it may be unnecessary to require mandatory training or persuade the applicant of the value of floor time and adherence to proper office routine.
If the applicant is aggressive and self-motivated, it may be unnecessary for the broker to specify not merely “what” the job is but also “how” to do it.
In addition, the broker must consider the extent to which the applicant will be engaged in activities other than “pure sales.” If the applicant will be involved in property management and rental activities, a degree of control will be required that will almost inevitably exceed that allowed in an independent contractor relationship.
At one time, it was thought desirable for brokers to use both the independent contractor and the employee relationship because it enabled the broker to maintain closer control over new or inexperienced salespeople, who could then change to independent contractor status when they gained sufficient experience.
It also was believed that having both employees and independent contractors in the same organization enabled the broker to “heighten” the distinction between them, thereby reinforcing the validity of the independent contractor status. However, many attorneys now advise against mixing independent contractors and employees.
The broker who does so must be very careful to treat them in a distinct manner.
This can be difficult to do, and there is a serious downside for the broker if there is any mistake.
ESTABLISHING THE RELATIONSHIP
Once the broker has determined the type of relationship he or she desires to establish with the sales applicant, the next decision is whether that relationship should be established by oral or written agreement.
In most employer-employee relationships, an oral understanding is usually sufficient and preferable to a written agreement.
Any oral employment agreement should be supported by a clear and comprehensive operations manual to which the broker and salesperson may refer for a definition of their respective rights and responsibilities.
A written employment contract has the benefits that it sets forth the terms of the employer-employee relationship more precisely and thereby limits the areas of potential controversy and litigation.
In addition, it permits the broker to differentiate between employees in a way that cannot be achieved if the relationship is defined by an operations manual or by custom.
However, with a written agreement the broker gives up the at-will employment provisions contained in most state common law.
Consequently, any written agreement must be very specific as to when disciplinary actions would be taken against an employee as well as under what circumstances employment can be terminated.
In addition, a written agreement can muddy the waters as to whether a salesperson is an employee or an independent contractor.
However, a written agreement becomes advisable for common law independent contractors and is indispensable for statutory independent contractors.
A written contract provides a salesperson with a source of ready reference about his or her rights and obligations. It enables the broker to discuss problems in particularized terms, citing chapter and verse.
As a consequence it minimizes the risk that independent contractor status will be lost by inadvertence or misunderstanding.
DRAFTING THE AGREEMENT WITH THE SALESPERSON
No agreement with a salesperson, whether employee or independent contractor, should be drafted without advice of counsel.
It may not reasonably be assumed that an agreement which is acceptable in one state will be acceptable in another.
Nor may a broker assume that an agreement which is found satisfactory by another broker will be automatically adaptable to his or her operation.
There is grave danger in utilizing model or specimen forms.
Such forms are designed basically for use by attorneys to provide them with a format upon which they may build as the laws of the state and the particular needs and desires of the parties require.
This is not to say that an organization may not develop a standard form that may be used in establishing a relationship with a salesperson provided it is understood first that the form will be used only for those salespeople engaged in the same activities and second that any differentiation between salespeople, however slight, will be reflected in changes to the agreement and will be reviewed.
The cost of securing review by counsel of the terms of the employment or independent contractor agreement is a small price to pay to minimize the significant risks created by a defective agreement.
Moreover, once counsel is familiar with the broker’s business and relationships with salespeople, the legal costs of maintaining the agreements in current form and updating them as changes in the law require will be reduced.
MONITORING ADHERENCE TO THE AGREEMENT
Because employers normally enjoy substantial control over their employees, the monitoring of the adherence of employees to their agreements involves essentially routine personnel administration.
This is not so in the case of independent contractor salesperson. As indicated elsewhere, the status of a salesperson is determined by that person’s relationship with the broker in fact and not by the mere terms of the employment agreement.
The most carefully drafted agreement will not preserve the independent contractor relationship if the parties themselves have ignored its terms.
This means that the broker who has independent contractor salespeople must establish a routine or program that will identify and correct any actions or attitudes inconsistent with the written agreement.
Such a program may be complex or simple depending on the size of the organization, number of salespeople, range of activities, number of offices, personalities of the salespeople, office procedures, management and other factors.
Essentially, however, any program must be able to accomplish the following tasks.
Periodic Review of Terms of Agreement
This review should occur at least annually and preferably more often.
The purpose is to fix the terms of the relationship firmly in the minds of the broker and salesperson and to provide an opportunity to make such changes in the contract as are deemed necessary.
Of course, too frequent reviews can lead to a question of control, bringing the salesperson’s independent contractor status into question.
Review of Plans, Policies, Forms and Procedures
This review is intended to assure that the relationship with the salesperson is consistently recognized by the broker’s organization.
For example, this review would reveal that the operations manual specifies that adherence to it is mandatory for all salespeople, or that an independent contractor salesperson cannot be assigned to open house duty and so on.
Review of Salesperson’s Representation to the Public
This review is intended to assure that the salesperson does not identify himself or herself as an employee of the broker in dealing with the public.
In soliciting listings or customers, or in making appearances in the community, the independent contractor must be careful to identify himself or herself as being associated with and not employed by the broker.
Further, independent contractors must not, in their dealings, use a title to which they are not entitled or ascribe to their broker a degree of control over their activities inconsistent with their status.
The manner in which the foregoing tasks may be performed is varied. Some will be performed by the broker, some by management and some may involve counsel.
Some brokers with large organizations have gone so far as to establish an internal security system whereby the actions of both management and salespeople are tested by persons unknown to either.
Regardless of the complexity of the program or the manner of its execution, its effectiveness depends on systematic and continuing implementation.
SUMMARY AND CONCLUSION
In applying these tests to determine whether an employee, statutory independent contractor or common law independent contractor relationship exists, there are many considerations.
Check with an attorney for complete details and to determine the current law in your state.
Real Estate Assistants - Employee versus Independent Contractor
Determining whether a broker/agent needs an employee or independent contractor should largely be based upon the type of work the assistant would be doing, and the extent of supervision the broker/agent desires to have over the assistant.
While hiring an independent contractor is attractive since the agent/broker is not required to pay workers’ compensation or withhold taxes, contractors generally have more autonomy in the work they perform.
If an agent or broker desires more control over the assistant’s activities, then hiring an employee would be preferential. Employees are part of the office “chain of command” and therefore more easily managed.
This determination is significant as it indicates who is liable for certain tax withholdings for the assistant.
Generally, assistants will be considered employees if the broker or salesperson hiring them retains the right to control what the assistants do and how it is done.
Since the need for an assistant derives from a salesperson’s excessive workload and the assistant’s activities will directly impact the salesperson’s work, the salesperson may want to retain a significant amount of control over the assistant’s actions.
If this is true, most likely the assistant will be an employee, and the hiring professional, either broker or salesperson, will be responsible for all tax withholdings.
Because of the nature of the job to be performed, more than likely an unlicensed assistant should be treated as an employee.
If the assistant is given more freedom to do his or her job as he or she sees fit, the hiring professional may consider the assistant an independent contractor.
In this case the assistant, and not the hiring professional, will be responsible for the tax withholdings.
However, labeling an assistant an independent contractor requires careful planning with an accountant and an attorney, as the financial liability for making a mistake in this area is great.
If a court later deems the assistant to be an employee rather than an independent contractor, the hiring professional may be liable for the payment of back taxes and penalties that can run back as much as seven years.
Liability for Real Estate Assistants
Who has responsibility for the actions of the real estate assistant?
This is easy to determine when the broker hires the assistant as an employee of the brokerage firm or lets a salesperson, who is an employee, hire an assistant who will also be an employee of the brokerage firm.
Under these circumstances, the broker has ultimate responsibility for the actions of the assistant similar to his or her responsibility for all other employees of the firm.
How about the more likely scenario where the broker allows the salespeople in the office who are independent contractors to hire their own assistants, either as employees or independent contractors?
The sales person would be held accountable for his or her assistant’s actions.
While less certain, the broker may ultimately be responsible for the assistant’s actions due to the fact that the salesperson is licensed with the broker.
This responsibility may include not only ensuring that the unlicensed assistant follows the licensing laws of the state but also that the assistant does not violate other laws, such as fair housing laws. The broker’s liability would depend upon the particular facts of each case.
Because of this potential liability, there are several actions a broker should take prior to anyone in the firm hiring an assistant.
First, the broker should check with the state real estate commission to determine its views on the supervision of real estate assistants.
Many state real estate commissions have developed supervisory guidelines to assist them in determining the liability of brokers when complaints regarding assistants are received.
These supervisory guidelines may apply to a broker regardless of whether the unlicensed assistant is an employee or independent contractor.
Once the broker has reviewed a state’s supervisory guidelines, if any, the broker should next develop an office policy outlining the use of unlicensed assistants and the procedures for their supervision, whether handled by the broker or the individual salesperson.
This policy should be developed with the aid of an accountant and an attorney, as the degree of permissible supervisory control will differ when the assistant is an employee versus an independent contractor.
In any event, a broker should not permit a salesperson to hire any assistants without first having his or her own policies in place.
Hiring real estate assistants requires careful planning by both the broker and salesperson as to the duties to be performed by the assistants, the amount of control to be exerted over them, their status for tax purposes, and the supervisory procedures to put in place in the office.
Potential liability for hiring real estate assistants can be alleviated by addressing these issues up front, prior to the hiring process.
As a final safeguard, be certain to document the relationship through job descriptions and written agreements.
Legal Matters…Brokers Can Avoid Potential Legal Problems with Personal Assistants by Developing a Comprehensive Management Policy
To avoid legal problems, real estate brokerage firms should have a comprehensive written policy on the use of personal assistants.
As the number of agents who use personal assistants grows, so do the legal risks of the broker who might be held liable for employment-related mistakes.
1. Define the assistant’s activities. You need to know which activities in your state require an assistant to have a real estate license.
For example, in Indiana, a person must have a license to conduct open houses, property showings or solicit listings.
But an unlicensed assistant may take messages, assemble closing documents and place signs on property.
Also, state law may require that the principal broker hold the license.
2. Specify who will train the assistant.
In some states, such as Indiana, the principal broker has supervisory responsibility over any affiliated licensee, including licensed assistants.
A principal broker may be hit with disciplinary action if an unlicensed personal assistant engages in any activities that require a license.
Therefore, the broker may want to be involved with the initial training of personal assistants to ensure that they are legally qualified for the job.
3. Consider other office policies and/or procedures. For example, you may want the personal assistant to abide by rules concerning MLS privileges relative to accessing electronic lock boxes; office equipment; office space; desk space; attendance in sales/training meeting; advertising rules; office expenses shared by other licensees; and participation in programs and contests.
4. Determine method of compensation.
Because most real estate licensees are treated as independent contractors, there is a tendency to treat all personal assistants, licensed or unlicensed, as independent contractors.
Under tax laws, the principal broker does not have to withhold federal and state income tax or pay FICA, unemployment and workers’ compensation for independent contractors. But under IRS rules, a personal assistant must meet certain criteria to qualify for independent contractor tax status.
5. Sign an agreement.
If a licensed assistant will be treated as an independent contractor, there should be a signed independent contractor agreement with the principal broker, agent and licensed assistant.
Include indemnification clauses, especially in the areas of supervision and direction.
Clarify that the licensed personal assistant is not the agent’s employee and address how you will handle commission splits.
6. Determine limitations.
You may want to place certain limitations on the assistant.
For example, you may want to limit the personal assistant’s ability to advertise or sign a document (in the case of a licensed assistant) on behalf of the company.
7. Specify reporting requirements.
A principal broker may want assistants to report directly to the broker, whether they are licensed or not.
After all, the principal broker may ultimately be held responsible for the assistant’s acts, omissions or representations.
Crafting a Policy Everybody’s Happy With
Personal assistants have become the rage, not only with top salespeople who generate more business than they can personally handle but also with mid-level salespeople who are guarding against burnout or just want to balance their personal and professional lives.
If you don’t accommodate personal assistants, it could cost you some very productive salespeople.
Then again, if you do, you must consider the liabilities in terms of supervision requirements (under license law), compensation, taxes and workers’ compensation.
The Search for Solutions
We wanted to make sure we protected ourselves from liability and maintained our personal assistants’ productivity.
We began our quest by asking other brokers, who has control over the assistants?
How are they paid? Has one ever been injured on the job?
What we found was a handful of unofficial ways that companies handled personal assistants.
In deciding the duties of an unlicensed personal assistant, we looked to our own state’s real estate manual and made sure our policies reflected those guidelines.
The policy states that unlicensed assistants are limited to carrying out secretarial functions, such as answering the phones and handling correspondence for salespeople.
They can work on the completion of a pending sales file to the extent of arranging for repairs, checking on the progress of financing, scheduling appointments for showings, installing signs and lockboxes (our lockboxes don’t require an MLS key to install), and helping with advertising copy for broker review.
Unlicensed personal assistants are prohibited from engaging in “professional real estate activity” as defined in our state license statutes.
This includes showing property, holding open houses, negotiating on any transaction, submitting any advertising or marketing materials without broker review, and answering consumers’ questions during a property call other than what’s covered in an ad.
The question of compensation is clearly highlighted in our state regulations, and we’re aware of the employer/employee traps as they affect workers’ compensation, taxes, and our wage and hour laws.
Unlicensed assistants can’t receive a portion of the salesperson’s commission and are advised on the applicable taxes to account for.
They’re advised to seek professional assistance in this area through their accountant or legal adviser.
With Licensed Assistants
In establishing the policy on licensed personal assistants, found a more familiar territory with the caveat that the licensed assistant is under the control of both the principal salesperson and the broker.
We indicated that while the personal assistant was under the control and supervision of the principal salesperson, all licensable activity is performed as a salesperson of the company and is liable as such.
Some salespeople do employ their personal assistants for specific hours through a placement service.
The personal assistants are to perform only specific clerical tasks during those hours and then are paid through the brokerage for their other, licensable (real estate) activity.
The licensed personal assistants can work for more than one salesperson and are required to sign an independent contractor agreement with the company as well as the licensed sales assistant addendum, which clearly names the principal salesperson.
The principal salesperson also signs an addendum to his or her independent contractor agreement that outlines the policies on both licensed and unlicensed personal assistants and indicates that he or she is operating under the policies.
Dr. Larry Hasbrouck