If you manage an office or are an agent who runs a team with independent contractors, it’s imperative that you examine your business model to determine if your current practices violate your state’s labor laws. Failure to do so could result in costly legal action against you and/or your brokerage.
Part 1 of this series outlined how any one of four lawsuits (Bararsani v. Coldwell Banker; Cruz v. Redfin; Galen v. Redfin; and Monell v. Boston Pads) could ultimately result in a forced employment model for all real estate agents. Regardless of the outcome of these cases, agent-run teams pose a special risk for the entire real estate industry.
Team models with the least risk of violating the labor laws
The type of team, how the team is structured, and the type of supervision exercised over that team determine the degree of risk associated with that model. The following types of team models pose the least amount of risk.
1. Partnerships between two independent contractor agents (including husband-and-wife teams) where neither agent supervises the other agent in the partnership. Any assistants are hired and treated as employees.
2. Agent teams that utilize an employee model where both agents and assistants have tax withholding, receive benefits, have vacation time and scheduled breaks, and have workers’ compensation coverage.
3. Team models where the office hires any assistants on agent teams as regular employees of the office.
4. Team models where the assistants are hired as employees and receive their paycheck and required benefits through an employment agency.
Team models with the greatest risk of violating the labor laws
The biggest risk for agent teams occurs when an independent contractor other than the supervising broker oversees the work of another independent contractor. The team structures listed below create the greatest risk for both the agent team leader and the company/managing broker who employs them.
1. Any independent contractor team leader (other than the managing broker) who directs other independent contractors on what they must do in terms of their duties on the team. This can include required office meetings, taking out clients as assigned by the team leader, having to engage in prospecting or holding open houses at times the team leader specifies, or requiring the independent contractor to use the tools and systems that the team leader uses.
2. Independent contractor team leaders who hire assistants as employees but require them to work without breaks (for example, holding a four-hour open house), fail to compensate the employees properly for overtime, and/or fail to provide other benefits, insurance coverage and withholding as mandated by their state’s labor laws.
3. Managing brokers/companies who compensate the same agent as an independent contractor, as well as compensating that agent as an employee. A classic example would be an independent contractor salesperson who is paid on commissions and who is also paid as an hourly rate employee to cover the front desk on weekends. Dual compensation methods are a red flag for the IRS.
Best practices for teams/companies to minimize your risk
The litigation over independent contractor vs. employee status could ultimately thrust the entire industry into a forced employee model. For the time being, here are some steps you can take to minimize the risk for your agent-supervised team(s):
1. Consult with a labor attorney to determine how your state defines independent contractor status. Do they use the three-factor, the more complex multifactor test, or some other standard to make this determination? Have the attorney review your current team practices to locate where you may be in violation of these laws.
2. If you are an agent team leader (other than the supervising broker/manager) who supervises other independent contractor agents, two options you can take to avoid violating the labor laws include:
- Option No. 1: If you want to control when your team members are in the office, assign them specific duties, and require them to use the tools and systems that you use, then it’s time to convert to an employee model. As noted earlier, in most states the real estate laws provide protection for the supervising broker — there’s nothing in the law that extends that protection to agents who supervise an agent team. This also means that you must follow both the state and federal guidelines for overtime, breaks, withholding and benefits for your team members.
- Option No. 2: Immediately cease supervising the other independent contractors on your team. Instead, treat them as if they are receiving a referral from you. In other words, you can no longer require them to hold open houses or take other direction from you on how they conduct their business. In fact, some agents have discovered that it’s simpler to refer business to other agents in their office and take a referral fee as opposed to the hassles of running a team.
3. Options for dealing with assistants
If you have an assistant or would like to hire one, take the following steps in order to conform to both your state and federal labor laws:
- Option No. 1: A full-time, in-office assistant with mandatory hours must be treated as an employee. This includes regular breaks, overtime pay, and all the other requirements discussed above. You can handle the withholding and benefits portion of this with a company such as ADP or Paychex. You remain responsible for tracking hours, breaks and overtime.
- Option No. 2: Hire a virtual assistant or freelancers from companies such as Elance.com or Odesk.com. These individuals are independent contractors, have multiple clients, own their own equipment, and set their own hours. On the other hand, if you want someone in your office regularly, then the employee route is best.
Again, the best course of action is to consult with a labor attorney, review your current practices in the light of the real estate and labor laws in your state, and immediately take steps to minimize your risk by shifting your model where needed.
Editor’s note: This is the second of a two-part series. See Part 1.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Discover why leading Realtor associations and companies have chosen Bernice’s new and experienced real estate sales training for their agents at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.