A real estate salesperson employed as an independent contractor:
Audio Lesson
Duration: 2:38
Question & Answer
Review the question and all answer choices
passes no liability for their actions on to their employing broker.
does not need to be supervised by the broker.
Brokers retain supervisory responsibilities over salespersons, even when classified as independent contractors. California law requires brokers to ensure their agents comply with regulations and ethical standards, making supervision a requirement, not optional.
needs to pay income taxes and social security taxes.
As independent contractors, salespersons are responsible for paying their own income taxes and self-employment taxes (which include Social Security), rather than having these taxes withheld by their broker like traditional employees.
is not eligible for workers’ compensation insurance coverage.
In California, real estate licensees are considered employees for workers' compensation purposes regardless of their independent contractor status. The California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court (2018) reinforced this interpretation.
Why is this correct?
A salesperson employed as an independent contractor remains personally liable for their actions and cannot transfer this liability to their employing broker. This is a fundamental principle of independent contractor relationships, where the principal (broker) does not assume responsibility for the agent's independent actions.
Deep Analysis
AI-powered in-depth explanation of this concept
This question addresses the critical distinction between independent contractors and employees in real estate, which fundamentally impacts liability, supervision, tax obligations, and benefits. Understanding this relationship is essential because it affects how real estate professionals operate and protect themselves. The question tests knowledge of California's real estate licensing structure where salespersons must work under brokers but can do so as independent contractors. Option A is correct because independent contractors remain personally liable for their actions, unlike employees who might share liability with their employer. Option B is incorrect as brokers maintain supervisory responsibilities even with independent contractors. Option C is wrong because independent contractors typically pay their own taxes rather than having them withheld. Option D is incorrect as California law requires workers' comp coverage for real estate agents regardless of employment status. This question challenges students by testing nuanced understanding of employment classifications in real estate and their implications.
Knowledge Background
Essential context and foundational knowledge
In real estate, the independent contractor relationship allows salespersons to operate with greater autonomy while working under a broker's license. California Business and Professions Code § 10148 establishes that brokers must supervise all licensed activities, creating a balancing act between independence and oversight. The distinction matters for tax purposes (independent contractors pay self-employment taxes), benefits eligibility, and liability exposure. This structure evolved from the need for regulatory oversight while allowing entrepreneurial freedom for real estate professionals.
LIDS - Liability, Independent, Direct Supervision, Self-employed Taxes
Remember that independent contractors have personal Liability, operate as Independent entities, receive Direct Supervision, and pay Self-employed Taxes
Remember that independent contractors remain personally liable for their actions and cannot transfer liability to their broker, regardless of employment classification.
Real World Application
How this concept applies in actual real estate practice
Sarah, a real estate salesperson classified as an independent contractor, accidentally disclosed confidential client information during an open house. The client sued Sarah for damages. Her broker attempted to claim immunity since Sarah was an independent contractor. However, the court found Sarah personally liable because she had signed an independent contractor agreement that did not transfer liability to the broker. Sarah had to cover the damages personally, highlighting the importance of understanding liability in independent contractor relationships.
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