Hiring an Assistant
Employee vs. Independent Contractor
Once you make the decision to hire an assistant, your next consideration is whether the assistant will be
an employee or independent contractor. This is a significant decision, as it indicates whether you will be
liable for certain tax withholdings.
According the 2005 NATIONAL ASSOCIATION OF REALTORS® Member Profile, half of the personal
assistants employed by REALTORS® are hired as independent contractors and half are hired as employees.
If your assistant is an employee, then you will be the employer responsible for the same tax withholding
as other employees receive: federal income tax, FICA (Social Security and Medicare), FUTA (federal
unemployment compensation), state income tax, and state unemployment compensation. Your also may
be required to carry workers’ compensation insurance. If the assistant is hired as an independent
contractor, the assistant is responsible for his or her tax obligations unless otherwise required by the
language and intent of the particular state law.
Generally, an assistant will be considered an employee if you retain the right to control what the assistant
does and how it is done. Since the need for an assistant derives from a salesperson’s excessive workload
and the assistant’s activities will directly impact the salesperson’s work, the salesperson may want to
retain a significant amount of control over the assistant’s actions.
If this is true for your situation, it’s most likely that your assistant will be an employee, and you — the
hiring professional — will be responsible for all tax withholdings. Because of the nature of the job to be
performed, more than likely an unlicensed assistant should be treated as an employee. For more
information on employer tax responsibilities, visit the Internal Revenue Service Guide to Employment
Taxes for Businesses.
If the assistant is given more freedom to do his or her job as he or she sees fit, you may consider the
assistant an independent contractor. In this case the assistant, and not the hiring professional, is
responsible for the tax withholdings. However, labeling an assistant an independent contractor requires
careful planning with an accountant and an attorney, as the financial liability for making a mistake in this
area is great. If a court later deems the assistant to be an employee rather than an independent
contractor, you may be liable for paying taxes and penalties that can run back as far as seven years and
possibly back wages to the assistant who was incorrectly categorized.
Adapted from: Real Estate Brokerage Essentials: Managing Legal and Business Issues (NATIONAL
ASSOCIATION OF REALTORS®, 2006). Order at REALTOR.org or by calling 800/874-6500; cost is $49.95 for
members and $69.95 for nonmembers.
Tax Requirements for Employees
If your personal assistant is an independent contractor, you aren’t responsible for any form of federal and
state tax withholding. Your only obligation is to prepare an annual 1099 form showing all monies you paid
your assistant and give copies to the IRS and your assistant. The independent contractor is responsible for
all tax obligations, unless state law indicates otherwise.
If your assistant is an employee, you are responsible for withholding income taxes and the employee’s
share of FICA — Social Security payments and Medicare contributions — from all wages, bonuses, and
commissions you pay. You alone are responsible for paying federal unemployment tax; the employee
makes no contribution.
Ask your new employee to complete Internal Revenue Service Form W-4 (downloadable from the IRS
Forms and Publications page) so you can calculate how much money you should withhold. To determine
income tax, use the withholding tables in the IRS’ handy Circular E, Employer’s Tax Guide. For FICA, you
withhold 6.2 percent of the employee’s wages and match that amount — a total of 12.4 percent. You
match Medicare at 1.45 percent — a total of 2.9 percent. And you must pay federal unemployment tax,
which is 0.8 percent of first $7,000 of the employee’s wages, or $56.
You must deposit the amounts you withhold from your assistant and your own contribution to a
designated bank account on a regular schedule — generally monthly. The IRS will supply you with Federal
Tax Deposit coupons, showing your Employer Identification Number, to make deposits. States also may
require regular deposits of state income tax payments that were withheld.
If all this sounds too overwhelming, you do have some options. Ask your broker if the company’s
accounting department will handle the paperwork for you for a small fee. Another option is to hire an
assistant through a temporary personnel agency; then it becomes the agency’s responsibility to handle
payroll and withholding. Or consider outsourcing this activity to your accountant or to a company that
specializes in payroll administration.
Determining Your Assistant’s Tax Status
Because most real estate professionals work as independent contractors, it’s tempting to put your
assistant in the same category. However, the issue is more complicated for personal assistants. Real
estate practitioners are classified as “statutory independent contractors” by the Internal Revenue Service
if they meet three criteria — licensure, compensation based on sales or output, and a written agreement
with the person for whom the service is performed.
Many practitioners wrongly assume that personal assistants who hold real estate licenses automatically
qualify as independent contractors. But since they do not contract directly with clients and in some cases
do not receive compensation based solely on output, they may not meet these statutory requirements.
To determine if your assistant can be classified as an independent contractor, use these criteria from the
IRS.
Your assistant is probably an employee if you answer “yes” to any of the following questions:
Is the worker required to comply with instructions about when, where, and how to p