1099
vs W-2 Employee for a
Mortgage Net Branch
1099 vs W-2 employee for a mortgage net branch
By Lee Walsh
- The Mortgage Net Branch Blog
This is a very important topic that many net branch companies do not
want to address.
Q. Can you work for a mortgage net branch company and be paid all or
part of your income as a 1099 contractor?
(There are many companies telling prospective branch managers that this
is OK - legal - and that everyone at the branch can be paid by 1099.)
A. WRONG!
Many companies are also paying loan officers and managers as 1099 contractors
on FHA and VA (HUD) loans.
This is VERY WRONG!
Let review the 2nd issue - Originating HUD (FHA/VA) loan and being paid
by 1099.
Read this summary memo from HUD regarding an audit to determine if independent
contractors are being used to originate HUD loans.
Summary
Link
It is absolutely clear that this is an illegal practice.
Now... let's address the more general practice of paying branches and
loan officers as 1099 contractors.
Many people think that it's OK if you are not originating HUD loans.
The defining source for this is the Internal Revenue Service.
Many state are silent on this issue, and even if they allow it the federal
government does not.
The IRS has a form called SS8
it is a 20 question form to determine if an individual qualifies for 1099
contractor status. No loan officer has ever qualified for 1099 independent
status.
Here is another link to the IRS that covers this question in detail.
Topic
762 - Independent Contractor vs. Employee
To determine whether a worker is an independent contractor or an employee
under common law, you must examine the relationship between the worker
and the business. All evidence of control and independence in this relationship
should be considered. The facts that provide this evidence fall into three
categories – Behavioral Control, Financial Control, and the Type
of Relationship itself.
If the company requires you to use specific forms, requires you to use
their vendors - appraisers, title companies, investors, etc., if you must
put your loans through their company, if you work under their license,
you are not an independent contractor you are a W-2 employee.
If you are working as a 1099 loan originator you could be subject to
large fines from the IRS.
Does the company I represent pay people as 1099 contractors? Absolutely
not! Everyone in our company is a W-2 employee.
As you consider a net branch company to work with make sure you are picking
a company that is in compliance with the rules and regulations we all
have to follow.
Even if you are not conducting your business this way if your company
is and they get caught you will be left out in the rain with everyone
else in that company.
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