POLICY & LEGAL MATTERS
The Indispensable Independent Contractor Classification
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By Christie DeSanctis
f the nearly 1.5 million members of the National Association of REALTORS® (NAR), approximately 87% are classified as independent contractors—a classification that is vital to practitioners and the real estate industry. As independent contractors, real estate professionals are empowered to be entrepreneurs, with maximum flexibility to thrive in a dynamic and flourishing professional field. The enhanced freedom and autonomy allow real estate professionals to work independently and advance their health and financial futures in a manner that best fits their needs. With the rise of gig economy workers in many different industries, the ability for workers to be classified as independent contractors has come under increased scrutiny, including for real estate professionals. While those working as independent contractors are recognized and protected under many state and even some federal laws, ongoing litigation and new federal and state legislation continue to threaten this status for those in the real estate industry. Such action could result in classification as
employees, which raises significant liability and financial concerns for the real estate industry and for other businesses that depend on an independent contractor workforce. The loss of independence for real estate professionals could jeopardize the ability to serve clients’ real estate needs and, as a result, impact the currently healthy market that is vital to supporting the present economic recovery. NAR has always advocated for the right of real estate salespeople to work as independent contractors and for brokers to choose to classify agents as independent contractors. Since 1982, real estate professionals have enjoyed an explicit protection in the Internal Revenue Code (I.R.C.), 26 U.S.C. §3508, which provides the framework to be classified as statutory non-employees for federal tax purposes. This decade’s old fed-
eral law has also been mirrored in states, ranging from workers’ compensation laws to real estate specific statutes, where each are explicit in qualifying a licensed real estate agent (or salesperson or licensee) as an independent contractor based on certain criteria and/or are expressly permitting the ability of a real estate broker to treat their agents as independent contractors. Recent pressure to adopt what is known as “the ABC Test” would make it more challenging to classify a real estate professional as an independent contractor. In response, NAR has been educating policymakers about the importance of the independent contractor status within the real estate industry to prevent “employee” reclassification. While none of the recent federal proposals directly impact the I.R.C. exemption, nor should they preempt existing state laws outlining real estate professionals’ status, it remains a concern that a new federal standard could influence other legislative or regulatory changes and encourage legal challenges to real estate professionals’ ability to be classified as independent contractors. NAR will continue to remain vigilant and fight for clarity in favor of classifying real estate professionals as independent contractors. This advocacy is bolstered by the federal government’s and many states’ longstanding recognition of the unique nature of the real estate industry and, as such, the need to treat it differently than other industries. For more on NAR’s efforts to protect the ability of real estate professionals to be classified as independent contractors, visit nar.realtor. RE
Christie DeSanctis is the director of Business and Conventional Finance Policy for the National Association of REALTORS®. RISMedia’s REAL ESTATE July 2021 21
