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In the 1964 Christmas special, Rudolph the Red-nosed Reindeer, Hermey the misfit elf tells Rudolph, “Hey, what do you say we both be independent together, huh?” Although the holiday season has already passed and the new year is here, this line in the movie reminds me of agents within a firm. Although a firm may have many agents within the company and these agents may work collaboratively, agents tend to be independent contractors. Much like Hermey and Rudolph, agents are independent together. The following questions and answers cover what it means to be an independent contractor in a firm as well as common issues that may come up as an independent contractor.

Independent contractor status

What is an independent contractor? Do all licensees have to be independent contractors?

Per the U.S. Internal Revenue Service (IRS), the general rule is that an individual is an independent contractor if the person for whom the services are performed has the right to control or direct only the result of the work and not what will be done and how it will be done.

The law does not dictate whether licensees associated with a firm are employees or independent contractors. If the firm hires employees, then the firm will be required to treat the individuals as such for taxes and benefits. Alternately, if the relationship is that of an independent contractor, a written agreement documenting the relationship is required.

A safe harbor for real estate independent contractors is now stated in Wis. Stat. § 452.38 that is somewhat similar to the safe harbor in the federal IRS regulations in 26 U.S. Code § 3508. The safe harbor in § 452.38 depends on fulfillment of the following basic criteria:

• A written agreement between the firm and the licensee that provides the licensee shall not be treated as an employee for federal and state tax purposes.

• Seventy-five percent or more of commission related to sales or output and paid by the firm to the licensee during a calendar year is directly related to the brokerage services performed by the licensee on behalf of the firm.

As long as there is an independent contractor agreement meeting the safe harbor requirements, and the payment of commission meets the safe harbor, the agent will be considered an independent contractor for state law.

Does the WRA have an independent contractor agreement?

The WRA has an independent contractor agreement that can be used by members. The WRA-ICA — Real Estate Independent Contractor Agreement form is available for WRA members in Transactions (zipForm Edition) and the WRA Forms Library.

Role in the firm

A licensee in the firm is looking to be the office manager and would perform administrative tasks. For the administrative duties, the licensee would be paid a salary. The licensee will also continue providing brokerage services and will be paid commission for those transactions. Can a licensee be both an independent contractor and an employee for the same firm?

Wis. Stat. § 452.38 provides that an agent shall not be treated as an employee as long as there is a written independent contractor agreement and at least 75% or more of their compensation related to sales is directly related to brokerage services performed by the licensee on behalf of the firm. To paraphrase, the person will be considered an independent contractor if there is an independent contractor agreement and at least 75% of the compensation received from the firm is commission.

The statute further recognizes that an agent might be both an employee and an independent contractor. It qualifies that the requirements to have an independent contractor agreement and the 75% threshold for compensation apply to the brokerage services the agent is providing. Essentially, an individual can be paid directly as an employee for other activities, such as teaching, with the firm, regardless of the amount, and that they can also be an agent who is an independent contractor as long as they have the written independent contractor agreement and at least 75% of the money they receive from their activities as an agent is directly related to providing brokerage services addressed by the agreement.

The firm and agent should consult with their accountants and employment law advisors to explore how any dual status as an employee and an independent contractor affects any aspects of employment or tax law.

Are all agents associated with a firm required to be a REALTOR® member or MLS member?

It is the determination of each designated REALTOR® whether REALTOR® membership is a condition of the independent contractor relationship of a licensee. The firm and agents may refer to their agreements and office policy to determine whether REALTOR® membership is an office requirement and to whom it applies. If not, agents and licensed assistants may continue to work for the firm, not as REALTORS® but licensees working for a REALTOR® firm. The agents and licensed assistants may continue to work for the firm but may not hold themselves out as REALTORS®.

The term used for these licensees is “salesperson assessments.” According to the dues formula, it is the designated REALTOR®’s obligation to pay fair share dues for each agent who does not individually pay dues as a REALTOR® member, either as a REALTOR® member or a salesperson assessment.

The agent’s access to the MLS is based on the MLS participant’s membership. The MLS fees are based on the number of licenses held with the MLS participant. Whether the agents are REALTORS® or not, the fee structure and access to the MLS remains the same.

The agent would not have access to forms in Transactions (zipForm Edition) and the WRA Forms Library unless the agent was a member of the WRA.

The MLS participant is the broker of the firm. Each licensee associated with the firm is an MLS subscriber. MLS subscribers do not apply for membership in the MLS; instead, they are granted access to the MLS given the broker’s participation.

The MLS fees are based on the number of licenses held with the MLS participant. Whether the agents are REALTORS® or not, the fee structure and access to the MLS remains the same.

The owner of the firm is a licensed salesperson associated with the firm. However, the owner is not the supervising broker. As a licensed salesperson, can the owner still sign listing contracts or buyer agency agreements on behalf of the firm?

It is a business decision for the firm regarding who is authorized to sign agency agreements such as listing contracts on behalf of the firm. Firms often give agents the authority to sign agency agreements on behalf of the firm in the independent contractor agreement, office policy manual or even something as simple as an email from the firm to the agents stating what authority was being granted and any exceptions to it.

However, the supervising broker must consent in writing to terminate a listing contract, amend the commission amount or shorten the term of the listing.

Commission

The agent recently left the firm in the middle of the transaction. The agent did the majority of the work, and the firm’s supervising broker handled the closing after the agent left. Is the agent owed any commission from the transaction after leaving the firm?

Questions may arise regarding the compensation due when the agent leaves and there are transactions midstream — transactions where the agent has done work but there has been no closing or payment of commission. The agent and supervising broker may review the independent contractor agreement. The Compensation Following Termination section in the WRA-ICA form identifies when the agent’s right to commission is triggered or accrues, and what amount of the commission is payable, depending on how far the transaction has progressed when the agent departs, and the firm assigns someone else to continue and finish the transaction. This may also be addressed in the compensation exhibit or another addendum.

The entitlement to a commission depends on the contract between the firm and the agent, such as the independent contractor agreement or the company policy and procedures manual. If the contract does not address the situation or there is no written contract, prior actions of the firm in similar situations and the prevailing practice in the industry would be factors a court may consider if the agent pursued the commission in court. If the firm has no written agreements or policies, then the agent may need to prove the past practices of the firm or the prevailing industry practice in court.

The listing agent of a property retired and did not renew their license. The listing stayed with the firm and just closed. Per the independent contractor agreement, the firm does owe the agent a portion of the commission. Is the firm able to pay them a commission if they are now an unlicensed person?

Wis. Stat. § 452.19 limits the payment of referral fees, finder’s fees and commission splits to Wisconsin real estate licensees and persons regularly and lawfully engaged in real estate brokerage in another state, unless the person was licensed when the commission was earned or referral fee arrangement was made.

The commission or referral fee may be paid to a person with either a current broker license or salesperson license or someone who was licensed at the time the commission was earned or referral fee arrangement was made. Before paying the commission or referral fee, it is prudent to verify that the person holds a license at the time the commission was earned or referral is made and thus is eligible to receive the commission or referral fee. Wisconsin real estate licenses may be confirmed using the Wisconsin Department of Safety and Professional Services Wisconsin credential/license search webpage.

It is not necessary that a licensee be currently associated with a firm to receive a commission or referral fee. As such, as long as the licensee renews their license or was licensed at the time the commission was earned or referral fee arrangement was made, the licensee may still receive a commission or referral fee even if the licensee is not associated with a firm.

Wis. Stat. § 452.19: Fees and commissions

“(1) No licensee may pay a fee or a commission or any part thereof for performing any act specified in this chapter or as compensation for a referral or as a finder’s fee to any person who is not licensed under this chapter or who is not regularly and lawfully engaged in the real estate brokerage business in another state, a territory or possession of the United States, or a foreign country, unless the person was licensed under this chapter when the commission was earned or when the referral fee arrangement was made.”