Real estate agents are independent contractors. But, what about their staff and team members? One of the first tests the IRS uses to determine independent contractor status is whether the job is part- or full-time. Full-time will automatically be assumed by the IRS to be an employee. The IRS has a simple, three-factor test, called an ABC test, which includes these items:
- Is the worker free from direction and control?
- Work is performed outside of the employer’s business.
- Worker is customarily engaged in trade or business of the services provided (meaning they do the same thing for other clients).
The risk to the real estate agent with staff is if in an audit the IRS determines that workers that were treated as contractors are really employees. If so, the real estate agent could be subject to 15-percent, per year of the compensation paid to the staff. In those cases, the IRS would go back three years and the penalties would be very costly.
Check with us to see what level of risk you may have.