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brchiz

Real Estate Managing Principal Broker - 1099?

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I am working on an agreement to have Principal Broker join our team as the managing principal broker.  He would like to be on a 1099 independent contractor agreement, however, he will be responsible for reviewing all real estate transactions for our firm (and receive a commission from each).  Based on this, both my tax preparer and my attorney has told me that he needs to be on a W2.  They also told me that one person cannot be paid part of their compensation on a W2 and their commissions on a 1099.  The Principal Broker said that his tax preparer told him this was allowed.  If that is the case, can you share with me the best way to structure it?  Essentially, he will be 100% commission, however, I want to make sure that the employment status is correct for the job functions.


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So you have a tax preparer and an attorney advising you, but you resort to an anonymous message board for advice on how to structure the proposed employment and/or contractor agreement? Do you think that is wise? You can get general information about the law or where to find it here, not agreement forms or advice for structuring  business transactions.

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So you have a tax preparer and an attorney advising you, but you resort to an anonymous message board for advice on how to structure the proposed employment and/or contractor agreement? Do you think that is wise?

 

This +100.  Why would you want anonymous strangers second guessing your lawyer and tax preparer?

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For that matter, as the employer YOU set the terms, not the employee. If the position is as a direct hire employee, he either takes it or leaves it. Frankly I would not hire this guy who is asking you to go against the advice of your attorney and tax preparer. What other advice of theirs is he going to dismiss once hired?

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"If that is the case, can you share with me the best way to structure it?"

 

Er, no.  :)  Agree with others, and a twist:  never mind why come here asking strangers how to structure something about which we've no relevant info (even if we could by site terms or chose to), why would you disregard legal and professional advice to take this person at his word (that's suspect at best)? 

"... managing principal broker"

 

So I gather you or he isn't interested in a partnership/equity interest.  Anyhoo ...

Not clear why someone believes he should be treated differently than other brokers on the "team" or person in management position.  If he wants a business partnership/joint venture, that's another matter and you should discuss with attorney with relevant experience.

 

I'd feel free, however, just out of curiosity, to tell this guy to ask his tax attorney or tax professional to send the (written) legal analysis of why this isn't unlawful.  I presume you didn't ask and he didn't offer.  I suspect it'll be chirpy crickets; even if not, I'd revert to your attorney and tax professional to say "I know you told me X, but tell me why this is illegal/unlawful."

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Thanks for the replies.  I understand what everyone is saying about not taking the advise of an attorney and tax professional.  That said, I believe both to be opinions that error on the side of caution and I will likely follow suit.  The broker is not trying to avoid withholding, he is trying to prevent us from having to pay employer withholdings and worker's comp on his real estate transactions.  Every other agent in the firm will be on an independent contractor agreement and receive a 1099 for their commissions.  The firm will be paying the principal a small percentage of each agent's commissions for review and offer oversight of their transactions.  These small percentages will be paid to the principal via payroll and reported on a W2.  Where the 1099 comes in is when he lists and sells real estate on his own.  The firm will only take a small portion of his commission and if they have to pay employer withholdings on the amount he receives, it will only leave a very small percentage of profit on his transactions, possibly even be a loss.  Just looking for opinions...  it seems like this should not be a new concept.  We are a small firm with only one agent at this point for the Principal to supervise.

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As a general principle, a person cannot be both an employee and a non-employee for the same work. It doesn't matter if compensation consists of salary, commission, or a combination. Now, it is possible for an employee to also provide different work as an independent contractor. My secretary can also have a side business doing office cleaning, and I could hire her independently for that, but that's not common, so I can see why "conservative" folks might advise against it.  The common law tests applied by the IRS and the states determine employee status, not the employer or employee. If you control how/when/where and by whom the work is performed than the person is generally going to be your employee. If they can do the work how/when/where they want, delivering only a final result to you, they are likely to be independent contractors. 

 

In the scenario you describe, I don't see a reason you can't hire an employee to do the reviews and also allow that employee to write his own listings and sales.  For that activity, he probably controls his own actions as all other real estate agents do. He's doing two different jobs for you. It would be difficult for any agency to pin employment status on him for work that almost all people are paid as independent contractors just because he also works in another capacity as a legitimate employee.

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Thanks Jimbo...  That is the general consensus of other professionals in the Real Estate industry I have asked.  When the principal broker is listing and selling, he will be under no control or supervision of the company.  He will be treated the same as any other agent that will be contracted with us as independent contractors.

 

I don't believe the tax preparer or employment attorney I hired are versed in the Real Estate industry...  They do a good job in their area of expertise, however, don't fully grasp what a managing principal broker does.  If he doesn't list properties or work with buyers to purchase, he will be 100% W2.  However, when he has a listing or is representing a buyer, time spent on that will be completely independent.

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