As a licensed DBO CFL Lender, we are required to pay all employees through W-2. More importantly, effective January 1, 2020, California Assembly Bill 5 (AB 5) changed the law on how employees may be compensated. Specifically, AB 5 adopted a test, and a “Yes” answer to any of the questions below is a strong indication that the worker would be classified as an employee”.
- Do you instruct or supervise the person while he or she is working? By law the supervising broker is required to supervise the work of the MLO and is ultimately responsible for their actions (or inaction);
- Can the worker quit or be discharged (fired) at any time? LO’s can quit and.or fired every day, so this would be a “Yes”;
- Is the work being performed part of your regular business? The core business of a mortgage brokerage is making loans, of which, ALL of the activity is carried out the LO’s, so this would be a “Yes”, too.
- Do you provide training for the worker? By law a lender is required to maintain an Anti-Money laundering policy and provide training on an annual basis, so this should always be a “Yes”
Many of the trade associations have published guidance on this specific subject and most have opined that without question their belief is that a position as an MLO with a company would fall well within the classification as an employee, which is the primary reason that we require all employees be paid by W-2.