Advisory Letter on Senate File 6
ADVISORY LETTER FROM WYOMING ASSOCIATION OF REALTORS COUNSEL
SUBJECT: SENATE FILE 6- CHANGES TO REAL ESTATE SALESPERSONS AND UNEMPLOYMENT INSURANCE AND WORKER’S COMPENSATION COVERAGE
Disclaimer: Please be advised that the following does not constitute an official ruling by the State of Wyoming of the regulations and opinions set forth below. The information contained in this Advisory Letter is for use of members of the Wyoming Association of Realtors. The application and impact of opinions and guidance set forth can vary widely based on the specific facts involved. While Wyoming Association of Realtors have made very attempt to ensure that the information contained in this letter is accurate, Wyoming Association of Realtors or the State of Wyoming is not responsible for any errors or omissions and any individual member shall be advised to consult their legal counsel.
Issue: Changes created by the passage of Senate File 6 (Enrolled Act 5) which changes classification of Realtors/Salespersons by State of Wyoming Workforce Services as employees for the purposes of unemployment insurance (UI) and Worker’s Compensation(WC) and therefore obligation of broker to pay into funds based upon rating.
As a reminder from the last legal advisory notice, salespersons/licensees are not independent contractors for the sake of classification as exempt employees. Many of the licensees are under Independent Contractor agreements with the Broker/Brokerage. Obviously, if they are Independent Contractors they would be exempt from Unemployment and Worker’s Compensation. The Wyoming Statutes excludes from Workers Compensation: “Any individual engaged as an independent contractor.” W.S. 27-14-102(a)(vii)(D). The important issue is whether the individual is truly an Independent Contractor. An independent contractor is defined by the Wyoming Statutes as an individual who performs services for another individual or entity and:
Is free from control or direction over the details of the performance of services by contract and by fact;
Represents his services to the public as a self-employed individual or an independent contractor; and
May substitute another person to perform his duties.
W.S. 27-14-102(a)(xxiii). On the Unemployment side, the Wyoming Employment Security Law covering unemployment insurance contains similar wording W.S. 27-3-104 (b).
As most licensees do not meet this simple three prong test, they are not considered independent contractors by the State of Wyoming Workforce Services. There is a more detailed analysis for federal income tax purposes which allows many of the licensees to be deemed independent contractors for federal tax purposes. However, the State of Wyoming, in reviewing the licensees have deemed them employees. The main review by the State of Wyoming has been how most licensee’s actually represent themselves to the public (not as independent contractors but directly associated with a Broker) and that a Licensee can’t substitute any person into the transaction. Under the substitution prong, a Licensee would be allowed to have any other Licensee perform their duties even if from another Brokerage House or Broker. In addition, the State of Wyoming has issues with direction and control of performance of the individual licensees. It would be difficult for a licensee working under a broker to qualify as an independent contractor under W.S. 27-14-102(a)(xxiii) or 27-3-104(b).
REAL ESTATE LICENSEE EXEMPTION CHANGES
However, there is an exemption in both Workers Compensation and Unemployment Insurance for “employees” in the real estate industry. The current language in the statutes which was addressed in a previous advisory was “An employee is someone engaged in employment under any contract for hire, unless he or she is a licensed real estate broker or sales person receiving as sole compensation a commission based on the sale or rental of real estate.” The requirement was that the broker or sales person’s only source of income was commission based on the sale or rental of real estate. Therefore, if any income came from market analysis or other flat fees, the entire income was subject to Unemployment Insurance and Worker’s Compensation.
Enrolled Act No 5, which takes effect July 1, 2018, addresses this issue. The Legislative Summary states “This bill exempts responsible brokers, associate brokers and salespersons licensed under the Real Estate License Act who perform specified real estate activities from paying premiums for workers’ compensation and unemployment insurance coverage.” Wyoming Statute 27-3-108 (which addresses Unemployment Insurance) has been changed to remove the requirement that the compensation be based upon a commission as follows:
27-3-108 Services excluded from scope of employment.
Employment under this act does not include service performed:
(v) As real estate activity under W.S. 33-28-102(b)(xlv) by a responsible broker, associate broker or salesperson licensed under the Real Estate License Act, W.S. 33-28-101 through 33-28-401.
A real estate activity under W.S. 33-28-102(b)(xlv) includes (O): Providing a broker’s price opinion as provided in W.S. 33-28-125. Listed below are all of the activities which are deemed Real Estate Activities and therefore is done by a responsible broker, associate broker or salesperson will be exempt from Unemployment.
(xlv) "Real estate activity" occurs when an individual for another and for compensation performs any one or more of the following:
(A) Sells, exchanges, purchases, rents, manages or leases real estate;
(B) Offers to sell, exchange, purchase, rent, manage or lease real estate;
(C) Negotiates, offers, attempts or agrees to negotiate the sale, exchange, purchase, rental or leasing of real estate;
(D) Lists, offers, attempts or agrees to list real estate for sale, lease or exchange;
(E) Auctions, offers, attempts or agrees to auction real estate;
(F) Collects, offers, attempts or agrees to collect rent for the use of real estate;
(G) Advertises or holds himself out as being engaged in the business of buying, selling, exchanging, auctioning, renting or leasing real estate;
(H) Engages in the business of charging an advance fee in connection with any contract undertaken to promote the sale, auction or lease of real estate either through its listing in a publication issued for that purpose or for referral of information concerning the real estate to responsible brokers, associate brokers and salespersons;
(J) Buys, sells, offers to buy or sell or otherwise deals in options on real estate or improvements thereon;
(K) Assists or directs in the procuring of prospects calculated to result in the sale, exchange, lease or rental of real estate;
(M) Assists or directs in the negotiation of any transaction calculated or intended to result in the sale, exchange, lease or rental of real estate;
(N) Deals in time shares;
(O) Provides a broker's price opinion as provided in W.S. 33-28-125.
In addition, the definition of Employee under the Worker’s Compensation statutes has been modified under 27-14-102 to EXCLUDE the following from Worker’s Compensation:
(S) A responsible broker, associate broker or salesperson licensed under the Real Estate License Act, W.S. 33-28-101 through 33-28-401, who receives compensation for the services identified in W.S. 33-28-102(b)(xlv). The receipt of additional compensation from the performance of other real estate related services shall not negate this exemption.
Therefore, the previous issues of separating out commission versus non-commission work has been eliminated to the extent that a flat fee charge for a real estate activity is acceptable under the revisions.
There still may be compensation earned by completing non-real estate activities. Those non-real estate activities will not be exempt under these changes and should be separated out and be included in payment of unemployment and worker’s compensation rates. The use of a single member LLC is also available for those non-real estate activities.
IF YOU HAVE ANY FURTHER QUESTIONS – PLEASE CONSULT WITH YOUR ACCOUNTING AND LEGAL PROFESSIONALS.