Below are some potential pitfalls to consider:
- Checking that the individual is available to work for the bank and is not bound by a non-competition agreement from his previous employer.
- Clarifying, via contract, that the individual will be considered an independent contractor (for tax purposes, benefits, workers compensation purposes, etc.). Also clarifying that the contractor will not have the right to hire anyone or to act as the bank’s agent (in signing agreements, checks, etc.)
- Precluding contractor from conflicting with the bank’s business interests, disparaging the bank, and so on, with perhaps some consideration given to a non-competition agreement to protect the bank should the contractor end the relationship.
- Protecting the confidentiality and privacy of customer and bank information. Deciding how much information will be shared with the contractor, possibly to be included in the contract with privacy and confidentiality provisions, and monitoring to ensure that his access is limited. Also, deciding how that information and bank property will be dealt with after the termination of the agreement.
The IRS has released an excellent guide to the independent contractor versus employee rules, which is available here. While the determination of whether an individual should be treated as an employee or as an independent contractor depends on dozens of factors derived from years of case law, the IRS guide boils these factors down into three categories (with links to more in-depth discussion of each category):
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
The federal regulations governing MLO registration and licensure would not require a MLO to obtain a loan originator license if the MLO is employed at a financial institution and is registered with the NMLS. 12 CFR 1008.103(e)(5). The Illinois Residential Mortgage License Act prohibits individuals from acting as mortgage loan originators without first obtaining a license and defines “mortgage loan originator” as “an individual who for compensation or gain or in the expectation of compensation or gain” takes mortgage loan applications and negotiates loan terms. 205 ILCS 635/7-1A(a)205 ILCS 635/1-4(jj).