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 lawspdf). 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 would be states that would mirror that action and also encourage more litigation challenges that could 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) withdrew to delay the final independent contractor final rule that was set to go into effect that year. Earlier that 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 commentedpdf 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 was anticipated that the DOL would effectively delay the rule and eventually modify or rescind it, potentially adding more challenging worker classification standards, especially if the ABC test was to be incorporated.

In January 2024, the U.S. Department of Labor issued the final independent contractor rule assessing how workers should be classified under the Fair Labor Standards Act (FLSA) given the department’s concerns with worker misclassification. The FLSA is the law that sets standards for minimum wage, overtime pay, recordkeeping, youth employment standards and other rules impacting employees in the private sector. The final rescinds the 2021 independent contractor rule and applies a multi-factor economic reality test for determining whether workers should be classified as independent contractors or employees. Learn more.

Federal legislation supported by NAR, H.R. 5419pdf, the “Direct Seller and Real Estate Harmonization Act,” has been introduced that would mirror section 3508 into other laws, such as the Fair Labor Standards Act (FLSA), to provide additional certainty for real estate professionals’ classification as independent contractors. New state legislation and new federal rules expanding the definition of employee continue to threaten a worker’s ability to be classified as an independent contractor.