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ARE YOU IN COMPLIANCE? L&I Audits Will Reveal All

Lack of Industrial Insurance coverage could leave firms on the hook for thousands of dollars in back coverage, interest and fines...

Many real estate designated brokers are not aware of their requirement to pay industrial insurance for all brokers licensed to the firm. They argue that since brokers are independent contractors and not employees, there is no obligation to pay industrial insurance for brokers. However, the State Court of Appeals rejected that argument in 1993 ( Industrial Insurance must be paid, quarterly, to the Department of Labor and Industries for each real estate broker licensed to a firm. 


In 2008, the Department of Labor & Industries conducted an audit and found that 88% of those offices audited did not comply with payment requirements. Interest, penalties and four quarters of back-owed, unpaid premiums, were collected from non-compliant firms. This was during the Great Recession and in recognition of the devastating affect the economy had on so many in our industry, and in appreciation of the efforts made by the Washington REALTORS® to assist in the education of firm owners regarding their payment obligations, the Department offered a number of concessions to the real estate industry, related to that round of audits only. 

There was no obligation on the Department to make those concessions and nothing in the law constrained the Department’s right and ability to aggressively pursue full repayment of all amounts owing. Fast forward to 2019, the Department of Labor & Industries has no obligation to offer concessions to all real estate broker owners should their audits reveal non-compliance. 


While the payment of Industrial Insurance is viewed by many as only a monetary obligation, there is actually a significant benefit that flows to real estate firms from the payment of Industrial Insurance. If an employee, and in this case, a broker, is injured in the workplace, the employee or broker will be prohibited from suing the firm for recovery of lost time or medical expenses if the firm paid Industrial Insurance premiums for the injured worker. The employee or broker must take recovery of their losses from the Department of Labor and Industries, not from the firm.


If a firm has never paid Industrial Insurance Premiums for any employees or brokers, then the first step toward compliance is to re-file a master business license application through the Department of Revenue, indicating on the application that the business has employees. The process progresses more efficiently if firm files the application on-line rather than using paper forms.  

After the business license application is submitted, the firm will be contacted by an L&I account manager who will assist the firm in getting the paperwork necessary to satisfy reporting obligations and determine amounts owing. If the firm has previously paid Industrial Insurance for employees, then the firm only needs to contact their L&I account manager to determine the rate code and amounts owing for their brokers for the prior four quarters. Once the account is established, the firm will receive a rate notice at the end of every year identifying the insurance rate and the portion that the firm can require brokers and employees to pay for the following year. 


Reporting from the firm must be handled in one of two ways. The firm can either pay based on the amount of time actually spent working by each broker and employee, or the firm can pay premiums based on an assumed eight hours per day or 160 hours per month for each broker and employee. The critical issue is that the firm must select one option or the other and apply it to every broker and employee in the firm’s office. The firm cannot pay a portion of the premiums based on actual hours worked by some and an assumed eight hours per day or 160 hours per month worked by others. If reporting actual hours worked, it is essential that brokers and employees maintain a calendar showing the hours worked on a daily basis. In any audit, that calendar must be produced for any broker or employee who reported actual hours worked. For this reason, the vast majority of firms report the entire office on an assumed eight hours per day or 160 hours per month.


The basic insurance rate applied to new real estate offices is $0.1720 times the number of hours worked and broker is allowed to deduct $0.0672 of that amount from compensation paid to the agent or employee. If reporting based on an assumed 8 hours per day, there are 480 hours per licensee, per quarter. The amount owing, based on this calculation, is less than $83 per licensee, per quarter. Firms may require that approximately $32.26 of that be paid directly by broker or employee. 

These rates and the contribution that can be required of employee or broker will vary based on the experience factor, or hours and claim history, for each firm. Accordingly, firms must consult with their L&I account manager or refer to the annual rate notice sent to the firm at the end of the previous year, to determine the exact amount owing. Firms can also report and get information online at and 


If a broker or employee suffers a work-related injury, the medical provider will submit the claim directly to L&I. However, the firm has the right to be informed of the claim, amounts paid and to know what is happening with respect to claims managed under the firm’s policy. If only medical costs are claimed by an employee or broker, the firm’s rate will not be affected. If employee or broker also makes a wage claim, the firm’s rate premium is likely to increase. A wage claim is paid to a real estate broker based on prior years tax records showing the amount received in commissions.

L&I will continue to audit firms and brokers who are not properly reporting and paying premiums and will be required to pay penalties and interest in addition to at least four quarters of unpaid premiums. For more information, visit the Department of Labor and Industries website at or call the Department at 360-902-4817.