In September, California lawmakers passed Bill AB5, which reclassified about 1 million independent contractors as employees. The move provides them with benefits like sick time, paid family leave, and health insurance.
Real estate agents, on the other hand, are exempt from Bill AB5 because they didn’t meet the law’s “ABC test” for determining status.
This is in part because real estate agents are required by law to work under the supervision of a licensed broker. Insurance agents, doctors, securities brokers, and more than half a dozen other professions also found themselves exempt.
According to the bill, in order to be classified as an independent contractor, the following conditions must be met:
- 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.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
According to the National Association of Realtors (NAR), more than half of U.S. states specifically exempt real estate agents from workers’ compensation laws. The IRS considers real estate agents “statutory non-employees” if the following three factors are met:
- The agent must be licensed
- Compensation must be directly related to sales rather than hours worked
- There must be an agreement stating the agent will not be treated as an employee for federal tax purposes
The bill has more significant implications for “gig-type” work for companies like Uber, Lyft, GrubHub, Instacart, and more. Many of these companies have been accused of not paying workers even minimum wage in some cases, while high-level executives reap the benefits of large paychecks, bonuses, and traditional benefits like healthcare, paid family leave, and more.
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