What is the difference between an 'independent contractor' and an 'employee' in real estate brokerage?

Most real estate licensees are independent contractors of their brokerage, not employees, despite the close working relationship. Federal tax law (Section 3508 of the Internal Revenue Code) provides a special 'statutory non-employee' status for real estate licensees if: (1) Licensee is duly licensed; (2) Substantially all of their remuneration is directly related to sales output rather than hours worked; (3) Services are performed under a written contract specifying independent contractor status. Independent contractor status means: (1) Licensee sets own schedule, methods, marketing; (2) Brokerage cannot direct day-to-day activities (only require compliance with law and brokerage policies); (3) Licensee pays own self-employment taxes; (4) No benefits, paid leave, workers compensation, unemployment; (5) 1099-NEC tax form instead of W-2. State law sometimes adds requirements (training, supervision) that can complicate the analysis. Some brokerages employ licensees as W-2 employees with salary, benefits, and direction. The Department of Labor and IRS focus on whether the brokerage actually controls how the work is done. Recent state developments (California AB 5, others) have tightened independent contractor classification in many industries; real estate has typically been carved out.