Man I get asked this all the time. Many of you (and you know who you are) seem to want to hang on to that wishful thinking that just because it sounds ok to you to use 1099, or the girl down at the 7-Eleven said that was how she would do it, or your MLO said he would quit if you made him pay taxes…… that the CFPB will feel the same. So let’s try to put this to bed once and for all. They WON’T.
If you exercise any kind of control whatsoever over your MLO you are likely in a W-2 situation and will be viewed as such during an audit. Control can be interpreted to be something as simple as sponsoring the MLO and having your name on their business cards. Let’s go a bit further. Do they use your office, or your electronics, or your 800 numbers, or your copy machines? Do they work when you ask them to work, even just some of the time? Do they have a desk in your office? What does their letterhead say? Do you pay their cell phone bill? Do they wear a polo shirt with YOUR logo on it?
This is an easy test. If they look like an employee they probably are. So now the CFPB and state regulators will look to see if you properly report their earnings and collect the required taxes. That’s when we see the next twist. Is it legal for you as the employer to deduct your half of their taxes from their gross pay, so the net effect to you is ZERO? No way. Do you do that?
As a consequence of miss-classifying an MLO you may end up dealing with not only the CFPB and your State Regulators, but also the IRS. Any of you ever been there? It’s no fun at all. And you have to report those pesky IRS liens to the NMLS and your Warehouse Line renewal. So, time to get honest with yourself. Are you paying your MLOs properly? If so, do you have a good MLO contract, a hire letter, and a handbook to properly disclose your payroll procedures to them?
AND THEN THE NEXT BIG POT HOLE – IS YOUR COMP PLAN AND BONUS PLAN ACCEPTABLE?
If you don’t know or are worried I can fix this pretty quickly for you. Give me a call, I’m on it.
That’s it for now, over and out.