Risk management Controlling Personnel Risks
	Three Lines of Defense Against Risk Keeping Risks Under Control Controlling Transaction Risks Agency Disclosure Avoiding Antitrust Risks Minimizing Liability from Contracts Fair Housing Risks Controlling Personnel Risks Communications Policies to Minimize Risks Insuring Against Risks More Resources: Controlling Business Risks Code of Ethics: Controlling Business Risks		Even the most well-meaning real estate brokers and owners can find themselves accused of unfair unemployment practices. A good understanding of laws governing independent-contractor status, employment status, sexual harassment, workplace privacy, and anti-discrimination laws is the first line of defense against suits by disgruntled workers. Written personnel policies and clear-cut enforcement procedures also provide protection against misunderstandings and legal actions. —“Employee or Independent Contractor,” Real Estate Today, September 1998 More than nine out of 10 REALTORS® work as independent contractors, a proportion that has been relatively consistent for several years, according to the 2003 NATIONAL ASSOCIATION OF REALTORS®Member Profile. There are two possible relationships between brokers and salespeople: · Employee · Independent contractor Two tests—one used for federal tax purpose and one for other purposes such as state employment, worker’s compensation, and unemployment laws—are applied to determine if a worker is an independent contractor: Statutory independent contractor. Created by the federal government only for federal tax purposes, this status is set forth in the Internal Revenue Code. Real estate sales associates qualify as statutory independent contractors if they meet a three-part test: 1. The person must be a licensed real estate broker or salesperson. 2. Substantially all of the sales associate's remuneration must be based on output rather than on the number of hours worked. (Note that while the Internal Revenue Service has set no definite percentage for remuneration, at least 90 percent of remuneration should be based on output.) 3. There must be a written agreement between the sales associate and the employer specifying that the sales associate is not an employee. Common-law independent contractor. Status is determined by using guidelines set forth in court decisions. There are 20 common-law factors established by the IRS that are applied to determine if a worker is an independent contractor under common law. Many states still use the traditional common-law tests to determine independent contractor status. Consequently, you may encounter questions about independent-contractor status of your sales associates from state employment or tax authorities if you only meet the federal statutory requirements. Check your state’s laws carefully. 20 Common-Law Factors Under common law, the right to control and direct how business activities are performed is the single greatest factor in determining independent-contractor status. However, the IRS has a list of 20 common-law practices that determine whether a worker is an employee or an independent contractor. A "yes" response to any of the following questions suggests that a worker is functioning as an employee. 1. Is the worker required to comply with the employer's instructions? 2. Is the worker required to receive training from the employer? 3. Does the worker provide services that are integrated into the business? 4. Must the worker personally perform the services? 5. Does the worker hire, supervise, and pay assistants for the employer? 6. Does the worker have a continuing relationship with the employer? 7. Must the worker follow set hours of work? 8. Does the worker work full-time for the employer? 9. Does the work take place on the employer's premises? 10. Does the worker have to follow a work sequence set by the employer? 11. Does the worker have to submit regular reports? 12. Does the worker receive regular amounts of compensation at fixed intervals? 13. Does the worker receive payment for business and travel expenses? 14. Does the employer furnish tools and materials? 15. Does the employer provide facilities, such as office space, at no cost to perform the service? 16. Is the worker immune to profit or loss consequences? (Independent contractors are more vulnerable to losses from out-of-pocket project expenses.) 17. Is the worker restricted from other employment? 18. Is the worker restricted from offering his or her services to the public? 19. Can the worker be fired? 20. Can the worker quit without incurring liability? 7 Items Every Independent Contractor Agreement Should Have >		Keep It Ethical Never discriminate in hiring based on race, color, religion, sex, handicap, familial status, or national origin. (Article 10)