This is the final installment in our new video series on Office Management Principles. The previous episode covers the content of a written employment contract contain all significant aspects of a licensee’s employment.

This episode deals with public liability insurance, professional liability insurance and unemployment insurance benefits as well as industrial accident insurance for employees.

Public liability insurance, professional liability insurance and unemployment insurance benefits

Despite the Independent Contractor (IC) employment contract, which grants the agent complete discretion in conducting the settlement of bids and sales, the agent is uninterrupted subject to supervision through the broker. Commercial agents are representatives of the broker, regardless of the tax purpose of their employment contract.

The broker who hires brokers who use their own vehicles to carry out brokerage activities must be a named insured in the broker’s automobile insurance policy with respect to the broker’s risk management. The client broker must also maintain general business and professional liability insurance, also known as fault and omission insurance or simply E&O insurance.

In part, oversight is critical to reducing the agent’s exposure to liability for the failure of its sales representatives to screen, disclose, advise and service clients.

In real estate law, a commercial agent is both and agent and employee when working within the framework and scope of an activity with a broker. [Grand v. Griesinger (1958) 160 CA2d 397]

However, an agent is not always treated as an employee under state and federal withholding regulations.

For example, licensed real estate salespeople and agents are disqualified employees within the meaning of the California Unemployment Insurance Act. Although a sales agent is considered both an agent and an employee under California real estate law, a broker is not required to pay state unemployment insurance on the agent’s behalf. The agent, in turn, cannot claim unemployment benefits from the state once he has left the agent’s employment.

Receipt of remuneration from a licensed real estate agent under an employment contract, paid as a contingency fee for completing transactions, is the only testing required for the agent to avoid paying unemployment benefits. If the agent is paid a contingency feeno hourly wage, the agent will be denied unemployment benefits regardless of the level of oversight and control that the agent exercises over the agent’s real estate-related activities. [Calif. Unemployment Insurance Code §650]

A commercial agent is entitled to be paid the minimum hourly wage from a broker if the commercial agent is classified as a commercial agent employee by California labor laws. This classification under labor law is not related to the tax treatment. A labor law employee comes about due to brokerage behavior, including constant supervision and total control over that of the agent medium, fashion engaging in activities that require a real estate license.

However there agents of their agent, due to the nature of the day-to-day scheduling of appointments, property viewings and document preparation, most agents have a high degree of discretion and control over when they carry out various aspects of their business. This is especially true for the hours spent away from the broker’s office.

Typically, agents’ time in the office, at the desk, on the phone, or on the floor, rarely takes up more than one day a week, typically less than 20% of the time they spend on property-related listings and sales. Little extra time is spent in the office during staff meetings. As a result, agents are rarely considered employees except for the public order purpose of evaluating their conduct as licensees under California real estate law.

As a sales representative who are regularly off duty for more than half of their working hours, sell items or obtain work contracts, a real estate agent is excluded from the survey a minimum wage from your agent. [Calif. Labor Code §1171]

Workers’ Compensation Insurance

Brokers often ignore or are unfamiliar with employee compensation requirements for their agents. Employing agents often mistakenly believe that real estate agents and agents who work for them under IC arrangements are not employees.

However, according to labor law, the employees of a broker include:

• their licensed sales representatives (including ICs);
• other brokers operating under their license as broker affiliates; and
• their licensed and unlicensed administrative staff. [Lab C §2750.5]

A broker who is illegally uninsured or forcing their employees to wear their own workers’ compensation faces:

• a stop command by the Division of Labor Standards Enforcement (DLSE) of the California Department of Industrial Relations (DIR), preventing the broker from doing business until proof of insurance is produced;
• civil penalties and fines up to $100,000; and
• refund claims from current and former representatives for awards they have paid for employee compensation. [California Department of Real Estate Bulletin, Fall 2004, Page 10]

For a broker who employs one or more agents, the broker’s worker’s compensation insurance is in addition to policies for business, vehicle, and E&O insurance.

Exclusions under the Employee Compensation Act

There are regulations that exclude the obligation to take out workers’ compensation insurance for:

• broker-ownhe; and
• company manager directors.

The broker-owner of a sole proprietorship is not required to take out worker’s compensation insurance for himself. They are not employees, they are the independent owner.

If a broker and his or her spouse (or child or parent) use the Sole Owners If the brokerage firm is owned individually or by a company, workers’ compensation is not compulsory for the owners. So just immediate family members who are they Sole Owners of the company are excluded from workers’ compensation insurance. However, the agent’s spouse or relative must be clearly defined as a shareholder, either as a general partner or as an officer of the company. [Lab C §4150]

Immediate family members (a spouse, child or parent), licensed or unlicensed, who are not co-owners and employed by the broker must be covered by workers’ compensation insurance – as well as all other employees of the broker. This includes the agent’s spouse who is a licensee under their control, whether or not the agent employs another person. [Lab C §3700]

officers and directors of a company are not required to take out workers’ compensation insurance for themselves if they are only being paid as the owner of the company.

However, an officer or director must be covered by workers’ compensation insurance if:

• they provide services as a representative of the company for a fee (e.g. listing, negotiating for clients); and
• The company is also owned by non-senior owners. [Lab C §3351(c)]

If officers or directors are the sole owners of the company, an officer who provides real estate-related services for remuneration need not be covered by workers’ compensation insurance.