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Comparison Of Employee/Common-Law and Statuatory Independent Contractors Classifications

In order to obtain a better appreciation of the similarities and differences of these classifications, a short explanation of the impact of each on various aspects of a real estate practice follow.

1. Training and Educational Requirements. A broker may require an employee to participate in training, instructional and indoctrination programs, or require further education as a condition of employment. Such programs may be designed to train the salesperson in the broker's way of doing business, in his office routine, and in his sales techniques and procedures, as well as to familiarize the salesperson with current developments in the real estate license laws and other laws, rules and regulations relevant to the real estate business.

A broker may not require either participation in such programs or continuing education of a common-law independent contractor.

A broker may impose mandatory training and education requirements on statutory independent contractors.

2. Business Forms. Since both employees and independent contractors are agents of the broker whose business transactions directly affect and bind the broker, the broker may require the use of his forms by all salespeople.

3. Minimum Earnings Requirement. Brokers may set quotas for employees.
A broker cannot set minimum earning requirements or quotas for common law independent contractors. A broker may, however, take into consideration the results achieved by the sales associate in determining whether to renew or terminate his contract with the salesperson.
Minimum earnings requirements can be established for statutory independent contractors.

4. Office Manuals. Office manuals may be supplied to all salespeople and employees may be required to observe the office policies and procedures outlined in the manual. Statutory independent contractors also can be required to adhere to all policies and procedures set forth in the manual. The common law independent contractor may be required to follow the manual to the extent it sets forth the procedures or requirements which the broker and his organization are legally obligated to follow. However, it should be made clear that when the manual sets forth detailed rules of conduct, it constitutes only guidance to the common law independent contractor.

5. Sales Meetings. An employee may be required to attend sales meetings. Through such sales meetings the broker may become informed of sales activities and may take direct and immediate action to address errors or weaknesses in performance. Statutory independent contractors may also be required to attend sales and other special meetings. In contrast, a common law independent contractor may be invited to attend sales meetings on a voluntary basis, but may not be required to attend.

6. Managerial Positions. It is possible for an individual to be an employee with respect to managerial activities which are subject to the control of the owner of the business and a statutory independent contractor with respect to his sales activities. If such a dual role is adopted, it is imperative that the activities and compensation related to each be carefully segregated. Dual roles are not recommended for common law independent contractors due to the broker's need to maintain a lack of control which is difficult to assure if a salesperson is also holding a management position.

7. Territorial Assignments. Employees and statutory independent contractors may be assigned specific geographic areas in which to solicit listings and transact sales. While a broker may refuse to accept listings from beyond that geographical territory which the broker usually services, the common law independent contractor should not be restricted to a particular area within that territory except as may be negotiated and provided for in the independent contractor agreement.

8. Termination. The broker-salesperson agreement should provide the terms upon which the relationship may be terminated. An absolute right on the part of the broker to immediately and unconditionally terminate a relationship is generally found in employment relationships and should be avoided in agreements with common law and statutory independent contractors.

9. Work Other than Sales. Employees and statutory independent contractors may be required to fulfill assignments other than sales activities. For example, a broker may require that a salesperson assist in public relations work in the local community or represent the broker at conferences. The common law independent contractor may not be required to do work other than sales, but may voluntarily elect to do other work.

10. Business Cards. A broker may pay for an employee's business cards or share in the cost with the employee. In contrast, an independent contractor salesperson should buy his own business cards. However, to assure uniformity of cards used in his business, a broker may want to supply business cards to all his salespeople. In such cases, the broker should obtain reimbursement from his independent contractors for the costs of such cards.

11. Office Space. A broker may provide his employees and statutory independent contractors with desks, telephone and other necessary office equipment. However, use of the desk and other equipment should be left optional to the common law independent contractor salespeople.

12. Secretarial Help. A broker may provide, at his expense, secretarial help for his employees. Secretarial help may also be made available to statutory independent contractors, as their needs may require. The common law independent contractor may hire his own secretarial assistance if he deems it desirable, but the responsibility for compensation, facilities and equipment for such secretary rests with the independent contractor.

13. Automobile. The broker may provide an automobile for his employees or share in the cost of its maintenance. Independent contractors provide and pay for automobiles and maintenance.

14. Floor Time. A broker may assign specific hours of floor time to his employees and to statutory independent contractors. A broker may also direct such salespeople to handle a specific customer or complaint, keep the office manned or run a sales caravan.

A common law independent contractor may voluntarily take floor time but may not be required to do so by the broker. Moreover, common law independent contractors may not be required to participate in weekly open house caravan tours or handle specific customers or complaints.

15. Hours Worked or Overtime. A broker may specify a minimum number of hours which his employee or statutory independent contractor must dedicate to sales efforts each week and may require them to work overtime. No fixed number of hours or overtime may be required of common law independent contractors.

16. Salary. An employee may be paid a salary and may also receive other forms of compensation, including commissions and bonuses. The payment of a salary has been recognized as inconsistent with both common law and statutory independent contractor status, although statutory independent contractors can receive no more than 10% of annual income by salary or bonus, overrides and benefits without jeopardizing the statutory independent contractor status.

17. Commissions. The amount of commission paid to salespeople is established in the contract with the broker. As noted above, all independent contractor salespeople should be remunerated solely by commissions, which may, if so provided for in the contract, be on a sliding scale, with the salesperson's share of the commission increasing with increases in his sales volume. Employees may also be paid commissions and, would generally receive their share of commission minus the necessary withholding deductions.

18. Bonus, Overrides, Pension Plans and Other Considerations. A broker may give his employees bonuses, overrides, sales prizes, extra cash awards and other compensatory gifts. Statutory independent contractors may also receive such bonuses, overrides and other consideration provided it is based upon the salesperon's sales performance and does not exceed 10% of annual income. Common law independent contractors are only entitled to the compensation bargained for in their agreement with the broker and are not entitled to any additional benefits the broker may unilaterally confer upon his salespeople.

19. Draw Accounts. A broker may allow an employee to have advances against future salary or commissions. Such advances have been considered inconsistent with both common law and statutory independent contractor relationships. The broker may, however, extend bona fide loans to his independent contractors provided they are collected and not forgiven, or collection abandoned, unless collection is impossible or an exercise in futility.

20. Automobile Insurance. A broker may require employees to carry automobile insurance at the employee's expense, or the broker may pay a part or all of the premium. The broker may also establish minimum standards as to coverage and quality of the insurance. In contrast, a broker may not pay any part of the premium for independent contractors, but may require that independent contractors carry a specific level and coverage of automobile insurance in the independent contractor agreement.

21. Errors & Omissions Insurance. A broker may carry errors and omissions insurance on all salespeople, regardless of their status as employees or independent contractors. Notwithstanding any secondary benefits to the salesperson, the cost of such insurance is usually borne by the broker since it is primarily for the broker's benefit and provides desirable protection for him.

While errors and omissions policies generally protect the broker for his acts and the acts of his salespeople, not all policies extend coverage to protect the salespeople. Salespeople desiring errors and omissions coverage should inquire as to the terms of their broker's policy and seek separate coverage, as necessary.

22. Business and Real Estate Licenses. A broker may pay the licensing and renewal fees for his employees, but not for independent contractors.

23. Local Board, State and NATIONAL Association Dues. A broker may require employees to belong to the local Board of REALTORS, which, in turn, affords that salesperson membership in the State Association of REALTORS and the NATIONAL ASSOCIATION OF REALTORS. The broker may also pay all or part of the dues for these employees. A broker may choose not to contract with an independent contractor who is not sufficiently committed to his profession to become a part of the NATIONAL ASSOCIATION OF REALTORS and the family of organize real estate. If an independent contractor salesperson should decide to join such organizations, he must pay his own dues.

In accordance with the policy of the NATIONAL ASSOCIATION OF REALTORS, the local board may calculate the dues of each designated REALTOR member on the basis of the number of salespeople (both employees and independent contractors) affiliated with that member, who are not themselves members. Payment of dues by the broker in accordance with this policy does not jeopardize any existing independent contractor status because such payment does not entitle these salespeople to membership or in any way constitute payment of dues for the salespeople.

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