| Many mortgage lenders/brokers treat their loan | | | | fines that can bankrupt a company, or even file criminal |
| officers (who are their salespersons) as independent | | | | charges against the owners. Once the IRS has come |
| contractors. Those loan officers are paid on a | | | | in, other federal and state agencies follow right behind |
| commission based on the successful funding of a loan. | | | | them and assess their fines and penalties as well. If |
| The mortgage lenders/brokers pay the loan officers | | | | there is anything left, the loan officer can sue for |
| either as each transaction closes or on a periodic | | | | unemployment compensation, retirement benefits, profit |
| basis. The amount paid to the loan officer contains no | | | | sharing, vacation pay, disability or any other benefit that |
| deduction for federal, state or local taxes. Frequently, | | | | he/she would have received as an employee. Many |
| the loan officer does not receive any benefits, such as | | | | mortgage companies have gone out of business |
| company-paid health insurance or paid sick or vacation | | | | because they treated many of their loan officers as |
| time. At the end of each year, the mortgage lenders | | | | independent contractors and did not comply with |
| brokers issue IRS Form 1099s to their loan officers.As | | | | wage-and-hour lawsHow does the Internal Revenue |
| a mortgage lender/broker, you cannot classify whether | | | | Service or Department of Labor find out about you? |
| your loan officers are independent contractors or | | | | Usually, a dismissed loan officer will file for |
| employees. That task has been given to the Internal | | | | unemployment benefits or a disgruntled loan officer will |
| Revenue Service, the U.S. Department of Labor, your | | | | make a telephone call to the agency. And the agency |
| state unemployment insurance agency, your state | | | | will always follow up.You should also be aware that |
| department of labor and your state workers | | | | the agency that approved your lender/broker license |
| compensation insurance agency. Although each | | | | considers the loan officers to be employees because |
| agency has its own guidelines, typically the | | | | you have responsibility for their actions. Although some |
| determination turns on the degree of control that the | | | | states do not require that the loan officers be W-2 |
| mortgage lender/broker exercises and the degree of | | | | employees, they will not care how you classify the |
| independence that the loan officer enjoys. When the | | | | loan officer who is in regulatory hot water. The |
| mortgage lender/broker has the right to dictate what | | | | Banking Departments are concerned that your |
| will be done and how it will be done, then the loan | | | | company supervises the people operating under the |
| officer is an employee. The government agencies look | | | | auspices of your license. This requires that you |
| at facts concerning the behavioral control of the loan | | | | supervise the activities of your loan officers regardless |
| officer, the financial control of the loan officer and the | | | | of whether you pay them as employees or as |
| relationship between the mortgage lender/broker and | | | | independent contractors. After all, you are responsible |
| the loan officer. The Internal Revenue Service has a | | | | for any violations of the mortgage lender/broker law, |
| 20 factor test to determine whether an employer | | | | rules and policies committed by anyone, including a loan |
| employee relationship exists. Such factors include | | | | originator, operating under your license. Therefore, it's in |
| whether the loan officer has to comply with | | | | your best interests to supervise them.This Article is |
| instructions, gets training from the mortgage lender | | | | designed to be of general interest. The specific |
| broker, works exclusively for the mortgage lender | | | | information discussed may not apply to you. Before |
| broker, whether the loan officer can independently hire | | | | acting on any matter contained herein, you should |
| assistants, whether the loan officer has set hours of | | | | consult with your personal legal and accounting |
| work, whether there is a continuing relationship, and | | | | adviser.Robin M. Gronsky has been practicing law |
| whether regular reports must be given to a supervisor. | | | | since 1982. She is admitted to practice in New York, |
| The IRS seems to have a bias towards finding an | | | | New Jersey and Florida.As a former general counsel |
| employer-employee relationship. Even if the mortgage | | | | of a national mortgage lender, Ms. Gronsky is |
| lender/broker has a written agreement with the loan | | | | experienced in corporate matters, mortgage licensing |
| officer classifying him/her as an independent | | | | on a nationwide basis, and all facets of real estate |
| contractor, that is not binding on any federal or state | | | | transactions.Ms. Gronsky graduated magna cum laude |
| agency.If you have been treating your loan officers as | | | | from the State University of New York at Buffalo and |
| independent contractors, when in reality, they pass the | | | | received her J.D. from Boston University School of |
| 20 factor test as employees, what are the | | | | Law.Ms. Gronsky's practice is geared to maintain |
| ramifications? If the Internal Revenue Service or | | | | personal contact with her clients and develop a |
| Department of Labor find you have misclassified | | | | close-working professional relationship over a long |
| employees, they will require you to pay back | | | | period of time. This helps assure that her clients' work |
| withholding taxes plus interest, or they can assess | | | | will be performed by the lawyer they have chosen. |