Employee vs. Independent Contractor

Once you make the decision to hire an assistant, your next consideration is whether the assistant will be an employee or independent contractor. This is a significant decision, as it indicates whether you will be liable for certain tax withholdings.

According the 2012 NATIONAL ASSOCIATION OF REALTORS® Member Profile,56 percent of the personal assistants employed by REALTORS® are hired as independent contractors and 44 percent are hired as employees.

If your assistant is an employee, then you will be the employer responsible for the same tax withholding as other employees receive: federal income tax, FICA (Social Security and Medicare), FUTA (federal unemployment compensation), state income tax, and state unemployment compensation. You may also be required to carry workers’ compensation insurance. If the assistant is hired as an independent contractor, the assistant is responsible for his or her tax obligations unless otherwise required by the language and intent of the particular state law.

Generally, an assistant will be considered an employee if you retain the right to control what the assistant does and how it is done. Since the need for an assistant derives from a salesperson’s excessive workload and the assistant’s activities will directly impact the salesperson’s work, the salesperson may want to retain a significant amount of control over the assistant’s actions.

If this is true for your situation, it’s most likely that your assistant will be an employee, and you — the hiring professional — will be responsible for all tax withholdings. Because of the nature of the job to be performed, more than likely an unlicensed assistant should be treated as an employee. For more information on employer tax responsibilities, visit the Internal Revenue Service Guide to Employment Taxes for Businesses.

If the assistant is given more freedom to do his or her job as he or she sees fit, you may consider the assistant an independent contractor. In this case the assistant, and not the hiring professional, is responsible for the tax withholdings. However, labeling an assistant an independent contractor requires careful planning with an accountant and an attorney, as the financial liability for making a mistake in this area is great. If a court later deems the assistant to be an employee rather than an independent contractor, you may be liable for paying taxes and penalties that can run back as far as seven years and possibly back wages to the assistant who was incorrectly categorized.

Adapted from: Real Estate Brokerage Essentials: Managing Legal and Business Issues (NATIONAL ASSOCIATION OF REALTORS®, 2006). Order at REALTOR.orgor by calling 800/874-6500; cost is $38.95 for members and $73.45 for nonmembers.

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