The Biden White House has recently proposed a rule to reclassify many independent contractors as employees, with the goal of making sure they have access not only to benefits, but to federal labor protections, the possibility of unionizing, and of course, paying taxes differently.
The proposal will be open for public comment for several months, and would take even more time to go into effect if approved. The Administration has cited gig companies like Lyft and Uber as their targets, but this is not a new proposal, rather a new version of regulations that were never truly enforced under Obama.
So what is an independent contractor?
An independent contractor is someone who works for themselves, sets their own schedule and willingness to work, and is not an in-house worker at a company. The applicable laws are therefore different for independent contractors and employees.
The proposal offers a litmus test which they call an economic realities test.
This determines a worker’s status, primarily the degree of controls a worker has over their work, and their impact on profits and losses. Other factors include how permanent a worker is, the skill required to perform the job, whether they spend money on their own equipment and materials, how integral a worker is to the employer’s business, and whether an independent contractor can work at more than one company at a time.
Regardless of the complexities of the criteria, in short, the question is whether a person is in business with themselves or if they are in business with a company.
And what about real estate?
While all eyes are on Uber and Lyft and their treatment of gig workers, real estate practitioners have always been classified as independent contractors, and altering that classification could have widespread implications in the industry.
We asked NAR to react. A NAR spokesperson told us, “NAR is still analyzing the proposed rule’s economic realities test for potential impact on the real estate industry. The proposed rule does not impact the classification of real estate professionals as independent contractors under the Internal Revenue Code (26 U.S.C. §3508), which provides the framework to classify them as statutory non-employees for federal tax purposes.”
Further, “The proposed rule also does not impact the many state statutes that specifically address how real estate salespersons may be classified as independent contractors based on certain criteria that must be met.”
“However, anytime new federal standards are proposed,” the Spokesperson continues, “there is increased risk for litigation challenging real estate professionals’ classification or the potential to influence states to adopt a similar interpretation. NAR will continue to advocate for and support the right of real estate sales people to work as independent contractors and for brokers to choose to classify real estate professionals as independent contractors, rights that are critical to the function of the industry.”