Mandated for employees, not named owners

Brokers often ignore or are unfamiliar with workers’ compensation requirements for their agents. Erroneously, employing brokers — there are about 23,600 with one or more agents — often believe real estate agents and broker associates working for them under independent contractor (IC) agreements are not employees.

However, IC agreements entered into between agents or broker associates and their employing brokers are solely for income tax reporting and unemployment insurance purposes. Under labor laws, licensees entering into IC agreements are employees. Thus, all employing brokers are required to provide workers’ compensation insurance for their agents and broker associates, whether an IC or W-2 employee. [Calif. Labor Code §2750.5]

In the administration of real estate law, the California Bureau of Real Estate (CalBRE) considers a sales agent as both an agent and an employee of their broker when acting within the course and scope of the employment. Likewise, an agent is an employee under workers’ compensation insurance law. [Lab C §§3200 et seq]

A broker’s employees include:

  • their licensed sales agents;
  • other brokers working under their license as broker associates; and
  • their licensed and unlicensed administrative staff.

A broker who is unlawfully uninsured or forces their employees to carry their own workers’ compensation insurance faces:

  • a stop order from the Division of Labor Standards Enforcement (DLSE) under the California Department of Industrial Relations (DIR), preventing the broker from conducting business until proof of insurance is provided;
  • civil penalties and fines up to $100,000; and
  • reimbursement claims from current and former agents for premiums they paid for workers’ compensation coverage. [California Bureau of Real Estate Bulletin, Fall 2004, Page 10]

For a broker who employs one or more agents, the broker’s workers’ compensation insurance policy is in addition to policies for any business, vehicle and errors and omissions (E&O) insurance coverage.

Exclusions under workers’ compensation law

Arrangements exist which exclude workers’ compensation insurance requirements for:

  • broker-owners; and
  • corporate officers and directors.

The broker-owner of a sole proprietorship is not required to obtain workers’ compensation coverage for themselves. They are not an employee, they are the self-employed owner.

When a broker and their spouse (or child or parent) are the sole owners of the individually owned or corporate brokerage company, workers’ compensation insurance coverage for the owners is not compulsory. Thus, only immediate family members who are the sole owners of the company are excluded from workers’ compensation coverage for themselves. However, the broker’s spouse or relative needs to be clearly defined as part owner, either as a general partner or as an officer of the corporation. [Lab C §4150]

Immediate family members (a spouse, child or parent), licensed or unlicensed, who are not co-owners and are employed by the broker are required to be covered by workers’ compensation — as are all other employees of the broker. This includes the spouse of the broker who is a licensee under their supervision, whether or not the broker employs any other person. [Lab C §3700]

Editor’s note – When researching workers’ compensation laws, we found that several sources (including the California Association of Realtors (CAR)) misstate the laws requiring coverage for employed family members. CAR states “a spouse, child, or parent is treated just like any other real estate salesperson working for the broker IF there are other salespersons working for the broker.”

The sole owner exclusion has nothing to do with how many employees or salespersons work under the broker. A DIR legal representative confirmed the exclusion for family members is only available if the broker shares sole ownership with the relative. Otherwise, workers’ compensation insurance coverage is mandated.

Officers and directors of a corporation are not required to have workers’ compensation coverage for themselves if they are paid only as owners of the corporation.

However, an officer or director is to be covered by workers’ compensation insurance if:

  • they render services as an agent of the corporation for a fee (e.g. taking a listing, negotiating for clients); and
  • the corporation is also owned by non-officer owners. [Lab C §3351(c)]

Here, when officers or directors are the sole owners of the corporation, an officer rendering real estate-related services for a fee need not be covered by workers’ compensation insurance.