Real Estate

Real estate agents exempt from California’s new anti-gig labor law

About 1 million independent contractors are reclassified as employees

California lawmakers passed landmark bill AB5 on Tuesday reclassifying an estimated 1 million independent contractors as employees to provide them with benefits such as sick time, paid family leave, and health insurance.

"The California Senate has voted to end the gig economy as we know it," Quartz said. "AB5 passing is a nightmare scenario for the gig economy not just because of its immediate consequences, but because it proves that such legislation is possible and politically viable."

Licensed real estate agents were given a carve-out in the California bill, along with insurance agents, doctors, securities brokers, and more than half a dozen other professions. Real estate agents needed the exemption because they didn’t meet the law’s “ABC test” for determining status. To be classified as an independent contractor, the following conditions must be met, according to the bill:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Real estate agents by law must operate under the supervision of a licensed broker. More than half of U.S. states specifically exempt real estate agents from workers’ compensation laws, according to the National Association of Realtors. More than a dozen lawsuits across the U.S. in the last two decades have tried to overturn the independent contractor status of real estate agents, without success. 

The IRS considers real estate agents to be “statutory nonemployees” if three factors are met. The agent must be licensed, compensation must be directly related to sales rather than hours worked, and there must be an agreement stating the agent will not be treated as an employee for federal tax purposes.

The longstanding IRS test “demonstrates the federal government’s recognition of the unique nature of the real estate industry and, as such, the need to treat it differently than other industries,” NAR said in a paper on agents and tax status.

Gig-type work has become controversial as companies like Lyft and Uber reap millions of dollars for high-level executives while the workers who make it possible end up paying the costs of performing the job out of their own pockets and lack benefits such as health insurance and paid family leave. 

Sometimes gig workers don’t earn the minimum wage that would be guaranteed if they were treated as employees. For example, drivers for ride-share services are required to pay for their own gas and other expenses for operating their cars. Once that’s factored in, many would earn more working in a fast-food restaurant, according to studies.

California, the most populous state, has the fifth-largest economy in the world, making it bigger than countries such as the UK. 

It’s the wealthiest U.S. state, with a combined net worth of $6 trillion, according to a report from the California Legislative Analyst’s Office. It also leads the nation in measures of income disparity such as homelessness and the number of children living in poverty, facts often cited during the debate in California's State Assembly prior to AB5's approval.

California’s homeless population, the largest in the country, began making headlines this week after President Donald Trump ordered a federal crackdown “to get homeless people off the streets of Los Angeles and other cities and into new government-backed facilities,” the Washington Post said on Tuesday. 

The following day, the Post reported federal officials had toured a facility once used by the Federal Aviation Administration as a possible site to put homeless people in advance of a trip to the area the president has scheduled for next week.

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