The Department of Labor published a rule that went into effect tin March of 2024. The rule was designed around revising the guidance on how a person is classified as an employee or independent contractor under the Fair Labor Standards Act. The new rule replaces guidance from 2021 so that, in the Department’s words, the analysis “is more consistent with the FLSA as interpreted by longstanding judicial precedent.” The new rule focuses on what is known as the “totality of the circumstances analysis” rather than the previous “core factors” analysis. Basically, the “nature/degree of control over the contractor’s work “ and “the worker’s opportunity for profit or loss” are no longer the main focuses in deciding if someone is an independent contractor, and instead, the analysis looks at all of the so-called “economic realities” [opportunity for profit/loss depending on managerial skill, investments by the worker and potential employer, degree of permanence of work relationship, nature and degree of control, extent to which work is an integral part of employer’s business, skill and initiative]. Most notably, the 2024 rule does not inherently contain a safe harbor or carveout for independent contractors in the real estate industry.
NAR and various other state agencies are working with the Department to create industry-specific analyses for employment factors. More information to follow as negotiations with the Department continue. For the present, the rule is not likely to have an impact on the real estate industry, as real estate licensees were commonly considered independent contractors in the previous epoch of “totality of the circumstances” FLSA guidance that existed before 2021.
It is also important to note that the dispute over the federal rule is only related to federal labor laws. Real estate brokers are not treated as employees under the Internal Revenue Code and Oregon tax law if they are licensed, they are paid based on sales/output not hours, and the services are performed pursuant to a written contract which provides that the individual will not be treated as an employee with respect to such services for federal tax purposes and for state tax purposes. Real estate brokers are also not considered employees for Oregon worker’s compensationif they are operating under an independent contractor agreement nor for Oregon unemployment insurance if they are paid by commission.