| Many mortgage lenders/brokers treat their loan | | | | her as an independent contractor, that is not |
| officers (who are their salespersons) as | | | | binding on any federal or state agency. |
| independent contractors. Those loan officers are | | | | If you have been treating your loan officers as |
| paid on a commission based on the successful | | | | independent contractors, when in reality, they |
| funding of a loan. The mortgage lenders/brokers | | | | pass the 20 factor test as employees, what are |
| pay the loan officers either as each transaction | | | | the ramifications? If the Internal Revenue Service |
| closes or on a periodic basis. The amount paid to | | | | or Department of Labor find you have |
| the loan officer contains no deduction for federal, | | | | misclassified employees, they will require you to |
| state or local taxes. Frequently, the loan officer | | | | pay back withholding taxes plus interest, or they |
| does not receive any benefits, such as | | | | can assess fines that can bankrupt a company, or |
| company-paid health insurance or paid sick or | | | | even file criminal charges against the owners. |
| vacation time. At the end of each year, the | | | | Once the IRS has come in, other federal and |
| mortgage lenders/brokers issue IRS Form 1099s | | | | state agencies follow right behind them and |
| to their loan officers. | | | | assess their fines and penalties as well. If there is |
| As a mortgage lender/broker, you cannot classify | | | | anything left, the loan officer can sue for |
| whether your loan officers are independent | | | | unemployment compensation, retirement benefits, |
| contractors or employees. That task has been | | | | profit sharing, vacation pay, disability or any other |
| given to the Internal Revenue Service, the U.S. | | | | benefit that he/she would have received as an |
| Department of Labor, your state unemployment | | | | employee. Many mortgage companies have gone |
| insurance agency, your state department of labor | | | | out of business because they treated many of |
| and your state workers compensation insurance | | | | their loan officers as independent contractors and |
| agency. Although each agency has its own | | | | did not comply with wage-and-hour laws |
| guidelines, typically the determination turns on the | | | | How does the Internal Revenue Service or |
| degree of control that the mortgage lender | | | | Department of Labor find out about you? Usually, |
| broker exercises and the degree of independence | | | | a dismissed loan officer will file for unemployment |
| that the loan officer enjoys. When the mortgage | | | | benefits or a disgruntled loan officer will make a |
| lender/broker has the right to dictate what will be | | | | telephone call to the agency. And the agency will |
| done and how it will be done, then the loan officer | | | | always follow up. |
| is an employee. The government agencies look at | | | | You should also be aware that the agency that |
| facts concerning the behavioral control of the loan | | | | approved your lender/broker license considers the |
| officer, the financial control of the loan officer and | | | | loan officers to be employees because you have |
| the relationship between the mortgage lender | | | | responsibility for their actions. Although some |
| broker and the loan officer. The Internal Revenue | | | | states do not require that the loan officers be |
| Service has a 20 factor test to determine | | | | W-2 employees, they will not care how you |
| whether an employer/employee relationship | | | | classify the loan officer who is in regulatory hot |
| exists. Such factors include whether the loan | | | | water. The Banking Departments are concerned |
| officer has to comply with instructions, gets | | | | that your company supervises the people |
| training from the mortgage lender/broker, works | | | | operating under the auspices of your license. This |
| exclusively for the mortgage lender/broker, | | | | requires that you supervise the activities of your |
| whether the loan officer can independently hire | | | | loan officers regardless of whether you pay them |
| assistants, whether the loan officer has set hours | | | | as employees or as independent contractors. |
| of work, whether there is a continuing relationship, | | | | After all, you are responsible for any violations of |
| and whether regular reports must be given to a | | | | the mortgage lender/broker law, rules and policies |
| supervisor. The IRS seems to have a bias | | | | committed by anyone, including a loan originator, |
| towards finding an employer-employee relationship. | | | | operating under your license. Therefore, it's in |
| Even if the mortgage lender/broker has a written | | | | your best interests to supervise them. |
| agreement with the loan officer classifying him | | | | |