Real Estate Agencies: Payroll Mistakes to Avoid (2026)

Mistake 1: classification

Section 3508 of the Internal Revenue Code provides that a qualified real estate agent is not treated as an employee and the person paying for the services is not treated as an employer for federal tax purposes. Qualification requires a real estate license, remuneration tied to sales or output rather than hours worked, and a written contract providing non-employee treatment.

Mistake 2: hours and the regular rate

The outside sales exemption from minimum wage and overtime requires that the employee's primary duty be making sales or obtaining orders or contracts, and that the employee be customarily and regularly engaged away from the employer's place of business. The salary requirements of the regulation do not apply to this exemption.

Any fixed site, including a home office, that a salesperson uses as a headquarters or for telephone solicitation is treated as one of the employer's places of business. Sales made by mail, telephone, or the Internet do not count as outside sales unless that contact is only an adjunct to personal calls.

Mistake 3: the real estate brokerage tax item

Licensed real estate agents are statutory nonemployees treated as self-employed for all federal tax purposes, including income and employment taxes, if substantially all payments for their services are directly related to sales or other output rather than hours worked, and their services are performed under a written contract stating they will not be treated as employees for federal tax purposes.

What catches them

A pay code review at setup, an exemption file per employee, a regular-rate flag on every pay component, and a deposit calendar that does not depend on one person remembering. Failure-to-deposit penalties run 2 to 15 percent; back overtime runs at time and one half plus an equal amount in liquidated damages.