Rhode Island law requires an employer to withhold taxes, workers’ compensation, unemployment compensation, and more from an employee’s compensation. If sales associates are independent contractors, no withholding applies.
Rhode Island law presumes that all working real estate licensees are employees unless:
- The sales associate and the broker have signed an independent contractor agreement.
- Working conditions meet the requirements of state law.
- The sales associate files a Notice of Designation as an Independent Contractor form with the RI Department Labor and Training.
The independent contractor agreement must include these requirements of state law:
(1) The broker, salesperson, or appraiser, for purposes of workers’ compensation, is engaged as an independent contractor associated with the person for whom services are performed;
(2) The broker or salesperson shall be paid a commission based on his or her gross sales, if any, without deduction for taxes, which commission shall be directly related to sales or other output;
(3) The broker, salesperson, or appraiser shall not receive any remuneration related to the number of hours worked, and shall not be treated as an employee with respect to the services for the purposes of this chapter;
(4) The broker, salesperson, or appraiser shall be permitted to work any hours he or she chooses;
(5) The broker, salesperson, or appraiser shall be permitted to work out of his or her own home or the office of the person for whom services are performed;
(6) The broker, salesperson, or appraiser shall be free to engage in outside employment;
(7) The person for whom the services are performed may provide office facilities and supplies for the use of the broker, salesperson, or appraiser, but the broker, salesperson, or appraiser shall otherwise pay his or her own expenses.
Here’s a link to the DWC-11-1C Notice of Designation as an Independent Contractor that all non-employee associates must sign.
You can check the R.I. Department of Labor and Training (DLT) database to make sure that the Notice of Designation has been recorded here.
You can search by individual or company names to find out who has registered.
When an independent contractor changes companies, a Notice of Withdrawal of Independent Contractor form must be filed on DLT’s website.
Failure to follow all of these steps can result in stiff penalties for the broker such as:
- Imprisonment for up to two years
- Civil penalty of a maximum of $1,000 per day of noncompliance
- Personal liability for officers of a corporation, LLC, etc.
- Liability for medical costs for a worker who is injured on the job
A full list of penalties and procedures for non-compliance can be found here.