NAR's Advocacy Efforts to Protect Independent Contractors

NAR has been educating policymakers on the importance of real estate professionals’ ability to be classified as independent contractors to the real estate industry, homeowners across the country, and to boosting the economy.

The ability to work as an independent contractor is recognized and protected under many state and some federal laws (see 26. U.S.C. §3508 and state laws). However, litigation and new federal and state legislation continue to threaten workers’ ability to be classified as independent contractors, including many real estate professionals. More specifically, NAR has communicated the concerns with adoption of the “ABC test” used for classifying workers. Should new federal standards adopt this test, there may be states that mirror that action and also encourage more litigation challenges that may impact real estate professionals’ independent contractor status.

In recent years, there continues to be interest in moving federal legislation that incorporates the “ABC test” for classifying independent contractors. Under this test, all of the following must apply: (a) an individual is free from direction and control applicable both under the contract for the performance of service and in fact; (b) the service is performed outside the usual course of business of the employer; and, (c) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Based on these factors, the state statutory supervisory and control requirements imposed on brokers over agents make it challenging to classify real estate professionals as independent contractors.

In May 2021, the Department of Labor (DOL) recently withdrew to delay the final independent contractor final rule that was set to go into effect this year. Earlier this year, the Department proposed delaying the effective date of the rule following a memorandum issued by the Biden Administration requesting federal agencies to review or delay certain pending regulations. NAR commented on this delay, requesting that the effective date not be delayed, as the regulation provides needed clarity and certainty for how an employer may classify a worker. While these regulatory modifications have no direct impact on real estate professionals’ classification under the Internal Revenue Code for federal tax purposes, it is anticipated DOL will effectively delay this rule and eventually modify or rescind it, potentially adding more challenging worker classification standards, especially if the ABC test is incorporated.