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Commentary by James Crumbaugh III

RISMEDIA, August 1, 2008-It’s been quite a learning experience since I decided to start a national real estate company a year ago. We have come across some very strange laws in some states where we have opened and we have come across laws that had to have been written before the advent of the automobile.

I have addressed some of these laws and regulations in a previous article, however, we have now run into a very strange phenomenon indeed in California, Washington and Michigan. As we continue to grow and expand into other states, we may very well run into similar situations again.

The situation I’m talking about is the blurring of lines between the definition of an independent contractor and an employee.

Let’s start with California. In California a real estate broker must provide workers comp insurance for all the Realtors under the broker’s license. While the fees for the workers comp insurance are not prohibitive, it does create a very hazy line between an independent contractor and an employee. So the question becomes, is the Realtor an independent contractor or an employee? If the Realtor is an independent contractor then how can the state require that the broker carry workers comp insurance on the Realtor?

What has really surprised me is the fact that probably 80% of the brokers and Realtors in the state of California aren’t aware that the broker needs to carry workers comp insurance. This should scare the stuffing out of the brokers in California. Particularly if there was ever an accident. From my understanding the fine for a California Broker not having workers comp insurance is $100,000.00.

What’s more, every quarter in Washington state, a Realtor is required to fill out a form stating how many hours they worked in real estate and then they have to so pay something like 1.897659% for every hour worked. The Realtor then has to write a check to the broker that is sent into the Department of Labor.

If this doesn’t invite fraud I don’t know what does. Let’s face it, the average Realtor maybe spends 5 hours day in the office and 4 of those hours are spent eating donuts, gossiping and maybe working an hour. They have to lie about the real hours they worked or their spouse would shoot them.

Then you have the Realtor that makes a real living, but they probably work 80 hour weeks. Once again this invites fraud, because they can claim they only work 40 hours a week. and they would get away with this. The question again becomes, are they independent contractors or employees? Once again, most brokers we speak to in the state are unaware of this law.

Briefly, let’s also talk about Michigan. We’re told that the broker must carry workers comp, but when we call the labor board they tell us it’s up to the individual Realtor board, but when we call a board they say it’s a state law. Apparently, only some brokers again pay this fee, because it’s not widely known that they have too.

We will also abide by the law, but I feel there needs to be a clear distinction between an independent contractor and an employee, and a clear understanding among all brokers of what is required of them.

James A. Crumbaugh III is CEO of Allison James Estates & Homes.

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