TN 10 (08-11)

RS 02101.200 Real Estate Agents and Salespeople

Citations:

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

A. Definitions

  1. 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.

  2. 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.

The salespeople

  • 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 licen