TN 10 (08-11)
RS 02101.200 Real Estate Agents and Salespeople
Section 210(q) of the Social Security Act;
Section 3508 of the Internal Revenue Code;
20 CFR 404.1069 Real estate agents and direct sellers
Real estate agents
Real estate agents assist buyers and sellers in the purchase and disposition of property. In order to function in this role, most states require that prospective agents take a number of classes and pass a real estate licensing exam.
Real estate broker
A real estate broker is a group or organization that acts as an intermediary between sellers and buyers of real estate.
B. Introduction to real estate agents and salespeople
Real estate salespeople may work under varying conditions.
Agree to work actively for the broker, conduct their business, and regulate their habits to maintain the goodwill and reputation of the broker. The signature of the broker is usually required to close a sale. This is mostly a matter of law and the salesperson’s presence in the office for this purpose only is not an element of control.
Are usually required to keep the office open during certain days of the week.
Abide by the general business policies and rules that control their moral conduct. However, they are usually free to solicit from whom they please and by their own methods.
Usually work when they choose, at their own expense, and their success is almost entirely dependent on their own initiative, skill, and personality.
The brokers expect the salespeople to produce business and may terminate the relationship for failure to do so. However, the broker retains no right to interfere with or control the salesperson’s activities.
C. Real estate agents and salespeople as employees
Real estate salespeople who work under circumstances where they are subject to supervision and control over the detail of their work are employees. A salesperson is an employee when the broker or dealer:
has the right to interrupt or set the order of services;
provides instruction or training in how the salesperson approaches prospects, closes sales, and works on particular problems;
requires attendance at their office at specific times;
requires fixed work hours;
requires that nearly all work be completed on the broker’s or dealer’s premises;
requires the salesperson to report on activities; and
pays the salesperson a salary or guaranteed minimum wage.
D. Real estate agents and salespeople as independent contractors
Section 3508 of the Internal Revenue Code provides standards by which certain real estate agents are deemed to be self-employed beginning with 1983.
1. Prior to 1983
Under the law in effect prior to January 1, 1983, the employment status for services performed as real estate agents was determined on an individual basis, using the common-law control test.
For Social Security purposes, we follow the rules of Section 3508 under the authority of Section 210(q) of the Social Security Act. To be an independent contractor (self-employed), the “qualified” real estate agent must:
be a licensed real estate salesperson;
derive substantially all remuneration received for services performed as a real estate salesperson directly from sales or other output, such as appraisal activities, rather than from the number of hours worked; and
perform these services under a written contract or agreement that stipulates that the individual will not be treated as an employee with respect to the services for Federal tax purposes.
2. 1983 through present
In determining the employment status with respect to services performed after December 31, 1982, first apply the criteria outlined above. If the salesperson does not meet all of the conditions, consider whether they are employees under the common-law control test . If not, consider their status as self-employed.
A real estate salesperson is an independent contractor when:
the salesperson is licensed to one broker and the salesperson pays the cost of the license;
the broker provides office facilities and property listings to the salesperson, and assists the salesperson by giving advice and cooperating in their endeavors;
the broker provides the salesperson with the necessary business forms, stationery, cards, and instructs them in office procedures and business policies, either verbally or by written instructions, such as sales manuals;
the salesperson agrees to work diligently for the broker and to conduct their business and regulate their habits to maintain and increase the good will and reputation of the broker;
the salesperson agrees not to sell for other brokers;
the salesperson provides their own transportation and pays all expenses incurred in the solicitation of business;
the salesperson generally reports to work daily, but does not work a fixed number of hours;
meetings are held in the broker’s office on a regular basis, usually weekly, but attendance at these meetings is voluntary;
sales are closed in the name of the broker;
the money is turned over to the broker who pays the salesperson commission at periodic intervals; and
the salesperson’s success is primarily dependent on their initiative and effort.