Brokers Are Required To Pay Industrial
Insurance For All Agents

It appears that many real estate brokers are not aware of their requirement to pay industrial insurance for all agents licensed to the broker. They argue that since agents are independent contractors and not employees, there is no obligation to pay industrial insurance for agents. However, the State Court of Appeals rejected that argument in 1993. Industrial Insurance must be paid, quarterly, to the Department of Labor and Industries for each real estate agent licensed to a broker. In a recent audit conducted by L&I, the Department found that 80% of those offices audited did not comply with payment requirements. Interest, penalties and up to 12 quarters of back-owed, unpaid premiums, were collected from non-compliant brokers.

In an effort to help other non-compliant brokers avoid these monetary sanctions, the Department of Labor and Industries has agreed to suspend the requirement to pay penalties and interest and to collect only four quarters of unpaid premiums, for all brokers who come into voluntary compliance by October 31, 2008, the reporting date for the third quarter of this year. Coming into compliance requires filing a quarterly report and payment of industrial insurance premiums for the current reporting period and the previous four reporting periods.

While the payment of Industrial Insurance is viewed by many as only a monetary obligation, there is actually a significant benefit that flows to real estate brokers from the payment of Industrial Insurance. If an employee, and in this case, a licensee, is injured in the workplace, the employee or licensee will be prohibited from suing broker for recovery of lost time or medical expenses if the broker paid Industrial Insurance premiums for the employee or licensee. The employee or licensee must take recovery of their losses from the Department of Labor and Industries, not from the Broker.

If a broker has never paid Industrial Insurance Premiums, then the first step toward compliance is to re-file a master business license application through the Department of Licensing, indicating on the application that the business has employees. The process progresses more efficiently if broker files the application on-line rather than using paper forms. (http://www.dol.wa.gov/business/file.html) After the master business license application is submitted, broker will be contacted by an L&I account manager who will assist broker in getting the paperwork necessary to satisfy reporting obligations and determine amounts owing. Once a broker’s account is established, the broker will receive a rate notice at the end of every year identifying the insurance rate and the portion broker can require agents and employees to pay for the following year.

Reporting from a broker’s office must be handled in one of two ways. Broker can either pay based on the amount of time actually spent working by each agent and employee or broker can pay premiums based on an assumed 40 hour week for each agent and employee. The critical issue is that broker must select one option or the other and apply it to every agent and employee in broker’s office. Broker cannot pay a portion of the premiums based on actual hours worked by some and an assumed 40 hour week worked by others. If reporting actual hours worked, it is essential that agents and employees maintain a calendar showing the hours worked on a daily basis. In any audit, that calendar must be produced for any agent or employee who reported actual hours worked. For this reason, the vast majority of brokers report the entire office on an assumed 40 hour week.

The standard rate applied to most real estate offices is .1388 times the number of hours worked. If reporting based on an assumed 40 hour week, there are 480 hours per licensee, per quarter. The amount owing, based on this calculation, is less than $67 per licensee, per quarter. Brokers may require that a portion of that be paid directly by agent or employee.

These rates and the contribution that can be required of employee or agent will vary based on the claims history for each broker. Accordingly, brokers must consult with their L&I account manager, or refer to the rate sheet sent to broker at the end of the previous year, to determine the exact amount owing.

If an agent or employee suffers a work-related injury, the medical provider will submit the claim directly to L&I. However, broker has the right to be informed of the claim, amounts paid and to know what is happening with respect to claims managed under broker’s policy. If only medical costs are claimed by an employee or agent, broker’s rate will not be affected. If employee or agent also makes a wage claim, broker’s rate premium is likely to increase. A wage claim is paid to a real estate agent based on prior years tax records showing the amount received in commissions.

Until October 31, 2008, Labor and Industries will suspend audits and work to assist brokers to come into voluntary compliance. After October 31, however, L&I audits will resume and brokers who are not properly reporting and paying premiums will be required to pay penalties, interest and up to 12 quarters of unpaid premiums. For more information, visit the Department of Labor and Industries website at www.LNI.wa.gov or call the Department at 800-547-8367.

Annie Fitzsimmons is the Legal Hotline attorney. Any questions can go to: legalhotline@warealtor.org