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Independent contractor

Maintaining independent contractor status of real estate agents: A refresher

Over the past year, NYSAR has successfully supported numerous legal actions brought by real estate sales agents claiming status as an employee in order to obtain unemployment benefits when those individuals were independent contractors.  Brokerages must be aware of the requirements of New York State Labor Law §511(19) when utilizing independent contractors as real estate agents within their office.  The following is a brief review of the requirements brokerages are recommended to follow when utilizing independent contractors.

New York State Labor Law §511(19) states as follows:

Qualified real estate agent. The term "employment" shall not include the services of a licensed real estate broker or sales associate if it be proven that (a) substantially all of the remuneration (whether or not paid in cash) for the services performed by such broker or sales associate is directly related to sales or other output (including the performance of services) rather than to the number of hours worked; (b) the services performed by the broker or sales associate are performed pursuant to a written contract executed between such broker or sales associate and the person for whom the services are performed within the past twelve to fifteen months; and (c) the written contract provided for in paragraph (b) herein was not executed under duress and contains the following provisions:

(i) that the broker or sales associate is engaged as an independent contractor associated with the person for whom services are performed pursuant to article twelve-A of the real property law and shall be treated as such for all purposes, including but not limited to federal and state taxation, withholding, unemployment insurance and workers' compensation;

(ii) that the broker or sales associate (A) shall be paid a commission on his or her gross sales, if any, without deduction for taxes, which commission shall be directly related to sales or other output; (B) shall not receive any remuneration related to the number of hours worked; and (C) shall not be treated as an employee with respect to such services for federal and state tax purposes;

(iii) that the broker or sales associate shall be permitted to work any hours he or she chooses;

(iv) that the broker or sales associate shall be permitted to work out of his or her own home or the office of the person for whom services are performed;

(v) that the broker or sales associate shall be free to engage in outside employment;

(vi) that the person for whom the services are performed may provide office facilities and supplies for the use of the broker or sales associate, but the broker or sales associate shall otherwise bear his or her own expenses, including but not limited to automobile, travel, and entertainment expenses;

(vii) that the person for whom the services are performed and the broker or sales associate shall comply with the requirements of article twelve-A of the real property law and the regulations pertaining thereto, but such compliance shall not affect the broker or sales associate's status as an independent contractor nor should it be construed as an indication that the broker or sales associate is an employee of the person for whom the services are performed for any purpose whatsoever;

(viii) that the contract and the association created thereby may be terminated by either party thereto at any time upon notice given to the other.

The statute is straight forward and it is highly recommended that brokerages have all independent contractors sign an independent contractor agreement immediately upon a licensee becoming associated with a brokerage and every 12-15 months thereafter.  Having an agent sign an independent contractor agreement does not necessarily afford the broker the protections intended by the statute and the safe harbor provision.  Brokerages must not only have the independent contractor agreement signed every 12-15 months, the brokerage must also be aware of the conduct of the brokerage and the independent contractor to insure compliance.  If the brokerage requires or permits the independent contractor to act in a manner inconsistent with the terms of the independent contractor agreement, the brokerage may be in a position where the sales agent could be classified as an employee.  Independent contractors cannot draw against future commissions or be held to any minimum earning requirement.  Brokers cannot mandate independent contractors to comply with any training or education requirement beyond those required under Real Property Law §441(3)(a).

NYSAR provides a suggested independent contractor agreement in the Legal Section of nysar.com.  The agreement was drafted in such a way as to include all of the provisions set forth in Labor Law §511(19).  It is strongly recommended that no additional terms or requirements be added to the agreement.  If a brokerage does add anything to the agreement, they should only do so under the advice of competent legal counsel.  NYSAR also provides a termination agreement in the Legal Section of nysar.com.  This document sets forth the rights of the salesperson in the event of the termination of his/her association with the brokerage.  This is a valuable document since such problematic issues as commissions due for current listings and pending sales at the time of termination are addressed at the onset of the independent contractor relationship.

If a brokerage follows the criteria set forth in the agreement and has a new agreement signed every 12-15 months, it makes it easier to prove the agent to be an independent contractor for the purposes of a workers’ compensation or unemployment insurance claim by the agent.  Failing to abide by the terms of the independent contractor agreement puts a brokerage at risk of having an agent classified as an employee.

Click here to read NYSAR's Advisory regarding the new commission law not being applicable to REALTORS who are independent contractors. 
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