Hiring a Personal Assistant
Employee vs. Independent Contractor
Once you make the decision to hire an assistant, your next consideration is whether the assistant will be an employee or independent contractor. This is a significant decision, as it indicates whether you will be liable for certain tax withholdings.
According the 2005 NATIONAL ASSOCIATION OF REALTORS® Member Profile, half of the personal assistants employed by REALTORS® are hired as independent contractors and half are hired as employees.
If your assistant is an employee, then you will be the employer responsible for the same tax withholding as other employees receive: federal income tax, FICA (Social Security and Medicare), FUTA (federal unemployment compensation), state income tax, and state unemployment compensation. Your also may be required to carry workers’ compensation insurance. If the assistant is hired as an independent contractor, the assistant is responsible for his or her tax obligations unless otherwise required by the language and intent of the particular state law.
Generally, an assistant will be considered an employee if you retain the right to control what the assistant does and how it is done. Since the need for an assistant derives from a salesperson’s excessive workload and the assistant’s activities will directly impact the salesperson’s work, the salesperson may want to retain a significant amount of control over the assistant’s actions.
If this is true for your situation, it’s most likely that your assistant will be an employee, and you — the hiring professional — will be responsible for all tax withholdings. Because of the nature of the job to be performed, more than likely an unlicensed assistant should be treated as an employee. For more information on employer tax responsibilities, visit the Internal Revenue Service Guide to Employment Taxes for Businesses.
If the assistant is given more freedom to do his or her job as he or she sees fit, you may consider the assistant an independent contractor. In this case the assistant, and not the hiring professional, is responsible for the tax withholdings. However, labeling an assistant an independent contractor requires careful planning with an accountant and an attorney, as the financial liability for making a mistake in this area is great. If a court later deems the assistant to be an employee rather than an independent contractor, you may be liable for paying taxes and penalties that can run back as far as seven years and possibly back wages to the assistant who was incorrectly categorized.
Adapted from: Real Estate Brokerage Essentials: Managing Legal and Business Issues (NATIONAL ASSOCIATION OF REALTORS®, 2006). Order at REALTOR.org or by calling 800/874-6500; cost is $49.95 for members and $69.95 for nonmembers.
Tax Requirements for Employees
If your personal assistant is an independent contractor, you aren’t responsible for any form of federal and state tax withholding. Your only obligation is to prepare an annual 1099 form showing all monies you paid your assistant and give copies to the IRS and your assistant. The independent contractor is responsible for all tax obligations, unless state law indicates otherwise.
If your assistant is an employee, you are responsible for withholding income taxes and the employee’s share of FICA — Social Security payments and Medicare contributions — from all wages, bonuses, and commissions you pay. You alone are responsible for paying federal unemployment tax; the employee makes no contribution.
Ask your new employee to complete Internal Revenue Service Form W-4 (downloadable from the IRS Forms and Publications page) so you can calculate how much money you should withhold. To determine income tax, use the withholding tables in the IRS’ handy Circular E, Employer’s Tax Guide. For FICA, you withhold 6.2 percent of the employee’s wages and match that amount — a total of 12.4 percent. You match Medicare at 1.45 percent — a total of 2.9 percent. And you must pay federal unemployment tax, which is 0.8 percent of first $7,000 of the employee’s wages, or $56.
You must deposit the amounts you withhold from your assistant and your own contribution to a designated bank account on a regular schedule — generally monthly. The IRS will supply you with Federal Tax Deposit coupons, showing your Employer Identification Number, to make deposits. States also may require regular deposits of state income tax payments that were withheld.
If all this sounds too overwhelming, you do have some options. Ask your broker if the company’s accounting department will handle the paperwork for you for a small fee. Another option is to hire an assistant through a temporary personnel agency; then it becomes the agency’s responsibility to handle payroll and withholding. Or consider outsourcing this activity to your accountant or to a company that specializes in payroll administration.
Determining Your Assistant’s Tax Status
Because most real estate professionals work as independent contractors, it’s tempting to put your assistant in the same category. However, the issue is more complicated for personal assistants. Real estate practitioners are classified as “statutory independent contractors” by the Internal Revenue Service if they meet three criteria — licensure, compensation based on sales or output, and a written agreement with the person for whom the service is performed.
Many practitioners wrongly assume that personal assistants who hold real estate licenses automatically qualify as independent contractors. But since they do not contract directly with clients and in some cases do not receive compensation based solely on output, they may not meet these statutory requirements. To determine if your assistant can be classified as an independent contractor, use these criteria from the IRS.
Your assistant is probably an employee if you answer “yes” to any of the following questions:
© Copyright, 2014, by the NATIONAL ASSOCIATION OF REALTORS®