What is typically the supervising broker's responsibility regarding their salespersons' commissions?

Under state license law, ALL COMMISSIONS for licensed real estate activity must be paid TO and THROUGH the supervising broker. The broker then pays the salesperson per their agreed compensation arrangement (commission split). This is a UNIVERSAL principle in real estate license law.

Why: (1) The brokerage (not the salesperson) is the licensed entity that contracts with clients; (2) The supervising broker is responsible for the transaction and trust funds; (3) State law typically only allows brokers (not salespersons) to receive compensation directly from clients or third parties; (4) Salespersons are 'affiliated' with a broker, not standing alone as licensees.

Process: (1) Closing/escrow disburses commission to the BROKERAGE per the listing agreement and cooperation agreement; (2) The broker may also receive commission from the buyer's broker (if cooperating); (3) The broker then pays the salesperson per their employment/independent contractor agreement, typically a percentage split (e.g., 70/30, 80/20, 100% with desk fees, etc.); (4) The broker handles tax withholding (if employee) or issues 1099 forms (if independent contractor); (5) Splits vary widely: some brokerages offer high splits (90-100%) with high desk fees; others offer lower splits with extensive services; (6) Cap-based models exist where the salesperson keeps 100% after meeting a cap.

Prohibited practices: (1) A salesperson collecting commission directly from a client (must flow through broker); (2) A broker paying a kickback to an unlicensed person; (3) Commission paid to a non-licensee for referral or other licensed activity; (4) Side payments outside the brokerage's accounting (this is fraud against the brokerage).

Common scenarios: (1) A buyer 'tipped' a buyer's agent at closing — this technically must flow through the broker but is often informally accepted as long as documented; (2) Referral fees from out-of-state agents must come through the broker.

Cash payments: Some agreements between cooperating brokers handle commission via cash; this is rare and not best practice.

Wire fraud caution: Wire fraud has impacted real estate; brokers should verify wiring instructions before sending commissions to ensure they're going to the correct broker, not a scammer.

Employment status: Most salespersons are classified as INDEPENDENT CONTRACTORS for IRS purposes (Schedule C income), but they still receive their pay THROUGH the brokerage, not directly from clients. The brokerage often issues a 1099 form to the salesperson at year-end. Some states require specific contracts between the brokerage and salesperson regarding compensation.