Real estate is a business unlike many others. It relies heavily on sales commissions, contractors, and irregular pay cycles, which can cause headaches for those in charge of coordinating payroll.
What you’ll learn
What you’ll learn
Key takeaways
- Real estate payroll is complex because brokerages often pay a mix of W-2 employees and 1099 independent contractors on irregular commission schedules
- Accurate classification matters as mislabeling agents or staff can lead to IRS penalties and compliance issues
- Flexible payroll systems help manage variable pay runs, bonuses, and commissions in one place, reducing manual errors
- Automating payroll saves time and gives brokers better visibility into labor costs, agent performance, and profitability
Keeping up with employment regulations and labor laws, streamlining payroll operations, and keeping staff satisfied can be an issue if you don’t use effective methods. Here’s what you need to know about real estate payroll and the importance of payroll software when running a rental agency or real estate brokerage.
How payroll works in the real estate industry
For most companies, payroll is a standardized procedure where the HR staff processes and sends out predictable payments based on an employee’s fixed salary or hourly wage. Unfortunately, payroll for real estate is much more challenging, especially when managing payroll for agents who earn commission-based incomes.
Agencies and brokerages must deal with commission-based structures, broker-agent splits, unpredictable payment frequencies, and compliance requirements. Paying attention to every detail and distributing timely payments to agents can mean putting extra time toward administrative work instead of growth.
Commission structures and payout rules you must know
Real estate commission is a key part of payroll that agents and brokers earn by selling or leasing a property. Commissions are often an agreed-upon percentage of the sale price or rental fee, varying based on property type, location, transaction type, and market conditions. These commissions may be split between the business and the agent in one of three ways:
- Fixed splits: This is a predetermined percentage that the agent and brokerage split, no matter how many deals the agent closes or how much commission the agent gets.
- Graduated models: A model where the agent takes home a larger amount as their commission amount increases.
- Capped models: The amount that the agent needs to pay the brokerage stops at a certain amount. After the agent reaches that amount in commissions, they get to keep all or nearly all of their earnings.
Calculating the splits that agents should earn per sale depends on a number of variables. Accuracy is essential, and using a software solution like OnPay, which includes all the essential features for payroll software, can guarantee that employees and contractors get exactly what they’ve earned.
Because commission models can vary widely from one brokerage to another, the table below highlights the main structures you’ll see in real estate — and how they typically work.
| Commission model | How it works | Best for |
| Fixed split | Brokerage and agent split commissions by a set percentage (e.g., 70/30), regardless of deal size. | Brokerages that want predictable revenue per deal. |
| Graduated split | Agent’s share increases as they earn more (e.g., 70/30 up to $50K, then 80/20). | High-performing agents motivated by volume. |
| Capped model | Agents pay the brokerage until they reach a cap, then keep 100% of commissions. | Experienced agents with steady, high sales volume. |
Now that we better understand the payroll basics and how brokers expect the commission structure to work, let’s find out more about the roadblocks real estate companies face when it comes to paying their agents.
Payroll challenges for brokerages and agencies
There’s no shortage of difficulties when it comes to making timely and accurate payments to brokers and agents in real estate. Here are some of the most difficult challenges to overcome:
- Irregular payouts: Those working in real estate sales don’t receive monthly pay, as payments come from commissions. Because agents may close multiple sales in a month or at odd times, commission-based pay is often unpredictable. This puts pressure on brokerages and agencies to accurately calculate and distribute payouts quickly and accurately.
- Managing staff: Brokerages and agencies use a combination of employees and independent contractors to maximize efficiency. However, this means balancing tax forms and reporting between W-2s and 1099s.
- Handling payments: One commission payment for a real estate sale can mean a large one-off payment of tens or hundreds of thousands of dollars. Accurately calculating and distributing such sizable payments can be challenging and time-consuming.
- Ensuring tax compliance: Employers must follow IRS rules and manage taxes and deductions for both employees and contractors. Making mistakes can mean hefty fines, penalties, and legal repercussions that could cripple a real estate business.
Compliance requirements every brokerage must follow
Meeting compliance regulations is an important and often overlooked aspect of payroll. Because laws vary across federal, state, and local jurisdictions, there are plenty of things that can go wrong with even the smallest errors. For example, brokerages and agencies must accurately classify contractors and employees, report 1099s, tax withholdings for staff, and file in a timely manner. Failure to do so can lead to expensive fines, wage and hour investigations, IRS audits, and irreparable damage to your business’s reputation.
Using a solution like OnPay helps you sort out your compliance and tax issues. Tools can help maintain organized, up-to-date records and reduce the risk of human mistakes that could jeopardize compliance.
Why traditional payroll doesn’t always fit real estate
Real estate businesses often use standard payroll systems that aren’t set up to deal with the complexities of the industry. Because real estate brokerages and agencies must deal with irregular pay cycles, they must constantly adjust payments to align with commissions or delay them to fit a schedule, upsetting employees and contractors.
Keeping commissions accurate in light of various commission split structures and large one-time payments can also lead to challenges. If mistakes are made, employees and contractors may leave the company or continue on with low morale and trust. Using a software solution to ensure accurate records and expedite payouts allows everyone to focus on real estate success instead of managing payments.
Running payroll in real estate comes with unique challenges, but there are ways to make it easier. Here’s a quick look at common issues and how to solve them.
| Challenge | Why it’s a problem | Possible solution |
| Irregular payouts | Agents earn commissions at unpredictable times. | Use payroll software that supports flexible or unlimited pay runs. |
| Mixed workforce (W-2s + 1099s) | Requires separate tax handling and reporting. | Choose a payroll system that manages both employee and contractor payments. |
| Large one-off commission payments | High-value payouts can lead to errors or timing issues. | Automate commission calculations to ensure accuracy and transparency. |
| Tax compliance | IRS penalties can result from misclassification or late filings. | Integrate payroll with accounting for real-time tracking and easier reporting. |
Practical solutions that make real estate payroll easier
Making real estate payroll easier doesn’t need to be complicated. By implementing several practical solutions, you can streamline operations and make better use of your resources. Here are four simple steps to take:
- Automate commission calculations: Using software that automates calculations reduces the complexity and tasks you need to manage. This process also speeds up payouts, improves transparency, and reduces the potential for manual errors.
- Integrate with accounting: By tying your payroll system directly to your accounting system, you’ll have an easier time keeping track of transactions, commissions, and payouts. This makes it easier to analyze data and make decisions to increase profitability.
- Use self-service portals for agents: Providing agents with a dashboard to track their payment details keeps things transparent. Agents will have fewer disagreements and questions about their payments, leading to better morale and increased trust.
- Allow unlimited pay runs: Using a payment solution that accommodates variable schedules allows agents to receive payments faster than with fixed schedules. This flexibility will give your business an advantage in the highly competitive real estate sales industry.
Real estate payroll you can rely on
“OnPay is incredibly easy to use. My employees and independent contractors get paid quickly, and the bookkeeping is seamless with OnPay. I highly recommend them. I can access it anywhere, anytime, and processing payments takes just minutes. The automatic filing saves me both time and money.”
— Chelsea Dietmeyer, Tall Firs Realty LLC
Benefits of getting payroll right in real estate
Accurate and on-time payments to employees lead to more than just a happy staff. Here are some other benefits:
- Reduced errors: Automating payouts eliminates the possibility of miscalculations and errors that can cause delayed payments or disputes with your staff.
- Cost savings: With fewer resources devoted to payroll, you’ll spend less overall. Keeping payroll accurate also means a lower likelihood of audits or penalties for not meeting compliance requirements.
- Scalability: Taking on more agents and closing more deals can be stressful when your payroll isn’t reliable. However, if you have the right system in place, you’ll find it easy to handle more volume and scale without issue.
- Better resource allocation: Automating payroll means giving your staff more time to focus on growth and profitability, leading to better long-term success.
- Agent satisfaction: When agents receive timely and accurate payments, it not only improves morale, but also boosts the reputation of your business.
- Smoother operations: Mastering payroll means less to worry about. You’ll benefit from fewer administrative issues, more consistency, and fewer visits from auditors.
Run payroll for real estate agents and brokers without the headaches
Payroll is a key piece of running a real estate business that keeps agents and brokers productive and closing deals. Businesses must do it accurately to guarantee adherence to employment laws and payroll regulations, as well as keep staff happy. To make sure you’re using the most efficient methods, use an effective payroll software for real estate businesses, such as OnPay. Many brokerages and agencies count on it because it can help with commission splits, handle 1099 contractors and W-2 staff, and integrate with accounting systems, saving you time and resources. Best of luck as you build your brokerage or firm, and if you have any questions, our team is here to help.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.