Employment Law

Exempt or not?

January 1, 2005

Although most real estate salespeople work as independent contractors, affiliated with a brokerage, there are many others in this business—managers, receptionists, assistants—who are considered employees under federal and state employment laws. Whether you’re a broker who hires management and support staff or a salesperson with one or more assistants, you need to know how employment laws governing wages, overtime, and record-keeping pertain to you.

Many of these laws aren’t new, but the recent issuance of new regulations defining exempt and nonexempt employees makes this a good time to review key provisions of federal labor law.

Unlike real estate licensees working as independent contractors, who are covered by special Internal Revenue Service regulations, workers in other aspects of the real estate business aren’t considered independent contractors unless they meet extensive tests created by the IRS. Some of the principal factors that determine whether a worker is an employee include the amount of control the company has over the worker’s hours, where the worker does the job, and the manner in which the work is performed. Generally speaking, if an employer gives specific directions as to when and how work is to be done, the worker is an employee.

To help companies determine whether a worker is an independent contractor, the IRS has created Form SS-8 (available at www.irs.gov). The form, which is necessary to complete only if you have a question about the tax status of a worker, poses a series of questions on the work performed and the behavioral and financial controls the company has over the worker.

Behavioral-control criteria include how the work is assigned, the location where the work must be done, and who determines how the work should be done. Financial-control criteria include who provides equipment for the worker; how expenses are reimbursed; and whether payment is made as a lump sum, commission, or hourly wage.

Exempt vs. nonexempt status

Once an employer has established that a worker is an employee, the next question is whether that worker is exempt or nonexempt from federal overtime requirements. Exempt workers don’t qualify for overtime pay. Last August the U.S. Department of Labor issued new rules defining exempt employees. Under these rules, employees in real estate activities could possibly qualify under either an executive or an administrative exemption from overtime. To qualify for an executive exemption, an employee must

  • Be compensated on a salary basis and be paid at least $455 per week. According to the regulations, a salary is a predetermined amount of pay that constitutes all or part of the employee’s compensation. It may not be reduced based on the quality or quantity of work performed.
  • Be managing the enterprise or a recognized department or subdivision of the enterprise.
  • Direct the work of at least two or more full-time employees or their equivalent.
  • Have the authority to hire and fire other employees or have a strong influence on these decisions.
  • To qualify for an administrative exemption, an employee must
  • Be compensated on a salary or a fee basis at a rate of at least $455 per week. Employees are paid on a fee basis if they receive an agreed-upon sum for a single job, regardless of the time required for its completion. Payments based on the number of hours or days worked aren’t considered payments on a fee basis.
  • Have primary duties that require office or nonmanual work directly related to the management or general business operations of the employer.
  • Exercise discretion and independent judgment with respect to matters of significance.

For a complete summary of the regulations, go to www.dol.gov.

If employees don’t qualify as exempt, they’re entitled to overtime pay for work time exceeding 40 hours in any workweek. The Fair Labor Standards Act requires that you pay nonexempt employees one and one-half times their regular pay rate for overtime.

Discrimination and immigration

Employment law, like fair housing law, prohibits discrimination on the basis of race, religion, national origin, ethnicity, age, or sex. Title VII of the Civil Rights Act prohibits an employer with 15 or more employees from asking questions about any of these protected factors during a job interview or from deciding a worker’s promotion, salary, or termination based on any of these factors.

Companies with 15 or more employees must also comply with the Americans with Disabilities Act, which requires employers to make special accommodation for workers with a disability.

Organizations with one or more employees must comply with the Immigration Reform and Control Act of 1986. This law requires companies to verify that the employee is either a United States citizen or an alien legally authorized to work in the United States. Under the act, employers must complete the Immigration and Naturalization Service’s I-9 form within three days of hiring a worker and keep it for three years after the employee has left.

Workers prove their legal status by providing forms of identification listed on the form. For more information, go to http://uscis.gov and look under Immigration Forms, Fees, and Fingerprints.

Record-keeping basics

Maintaining appropriate records on employees is sound employment practice. Keep these records for at least three years after employment terminates.

  • Employee’s name, Social Security number, and address
  • Date of birth, if the employee is under 19 (ensures children don’t work more than they’re allowed by law)
  • Gender and occupation
  • Time and day of week that workweek begins
  • Hours worked each day and the total for the workweek
  • Basis on which the employee’s wages are paid (hourly, salaried)
  • Regular hourly pay rate
  • Total daily or weekly regular earnings for the workweek
  • Total overtime wages for the work week
  • All additions to or deductions from wages (Social Security, insurance, and so on)
  • Total wages paid for each pay period and date of payment (such as once a week or twice a month)

Hinderer is senior vice president of human resources for the NATIONAL ASSOCIATION OF REALTORS®.

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