Questions about compensation arise frequently in real estate practice, often coming from uncertainty about the rules surrounding who can pay a licensee for their work. Even experienced professionals can run into confusion when transactions involve multiple companies, mid-transaction moves, or other unique scenarios. This article is a practical reminder of Alabama’s compensation rules and explains why consistent company practices are essential for staying compliant and protecting both the licensee and their brokerage.  

Note: This article is intended for information only and is not intended as legal advice. If you need legal advice, please contact a qualified attorney. 

Who Is Authorized to Pay a Licensee for Licensed Activity? 

Under Ala. Code § 34-27-36(b)(14), a salesperson or associate broker may receive compensation for licensed activity only from the qualifying broker under whom the individual was licensed at the time the work was performed. This means no other person or entity may pay the salesperson directly.

Why Is “Table Funding” Prohibited? 

A recurring issue under Alabama real estate license law is “table funding.” Table funding occurs when a qualifying broker or company instructs the closing attorney to pay a salesperson or associate broker their commission directly at closing. Although this may appear convenient, it is a violation of Alabama license law because the closing attorney is not the qualifying broker. The proper method is for the closing attorney or settlement agent to disburse funds to the qualifying broker, who then pays their licensee(s). 

Changing Companies Mid-Transaction: Who Pays the Commission? 

Another point of confusion arises when a licensee leaves one company and joins another while a transaction is pending. First, it’s important to note that Alabama license law does not entitle a licensee to be compensated for a transaction that was left pending when the licensee changed companies. For information about whether compensation is due in that scenario, licensees should review their Independent Contractor Agreement. 

If they are owed compensation under their former Independent Contractor Agreement, many licensees assume the compensation must be transferred to their new qualifying broker for payment to the licensee. However, Ala. Code § 34-27-36(b) requires commission to be paid by the qualifying broker under whom the licensee was licensed when they performed the services in question. As a result, the former qualifying broker should be the one to pay the licensee for services rendered while licensed under that qualifying broker.  

Are Reimbursements Treated the Same Way as Compensation? 

A narrow distinction exists under Alabama license law for reimbursements. If a licensee pays for property enhancements or other transaction-related expenditures out of pocket, and later receives reimbursement for those exact expenses, the payment is not considered compensation for licensed activity. It is simply repayment of money advanced on behalf of the client. Even so, you should check with your qualifying broker about any policies that your company has regarding reimbursements.

What About Teams?

Some team agreements outline a procedure for splitting compensation between team members. Although it may be tempting for a qualifying broker to ask the team leader to handle disbursement of these payments, that is a violation of Alabama license law. All payments to team members must come directly from the qualifying broker.

What Other Violations Can Improper Compensation Trigger? 

Alabama license law and the federal Real Estate Settlement Procedures Act (RESPA) both contain prohibitions against certain types of payments to and from third-party service providers, such as closing attorneys, title companies, lenders, etc. Alabama license law also prohibits compensating non-licensed individuals for providing services for which a license is required.   

What Are the Best Practices for Handling Commission Payments? 

Given these risks, it is crucial for qualifying brokers to adopt consistent internal procedures. The best practice is to ensure all payments are issued to the qualifying broker first, who can then distribute the payments as appropriate. When a licensee transfers to a new company during an ongoing transaction, it is ideal for the qualifying broker of the company they are leaving to document any compensation owed to the licensee.

For Additional Resources 

• Alabama Real Estate Commission’s Legal FAQ: Who Can Pay Me? 
• Alabama Real Estate Commission’s Legal FAQ: Table-Funding