Community Association Tip of the Week – “Employee or Contracted Vendor”


Many Associations struggle with the question as to whether an individual is a contracted vendor or an employee of the Association.  This can become even more confusing when dealing with a sole proprietor or a resident of the community who performs services for the Association that would normally be performed by a licensed contractor.  Is that individual a contractor, just because the Association has a “contract” with them and pays them without withholding any payroll taxes, SDI, FICA, etc.?

 It can be very difficult to determine whether one is an employee or contractor and a potential liability for those who make a mistake.  Simply having a contract or stating that one is a contractor may not make them one. 

 For years, California has prohibited employers from incorrectly classifying employees as independent contractors.  The prohibition ensures that employers pay payroll taxes to the State and overtime wages to employees. The law was recently overhauled to dramatically increase the penalties for misclassification and to extend those penalties beyond the employee/employer relationship.  Employers (Associations) can now face civil penalties ranging from $5,000 to $15,000 per misclassified employee!

 Perhaps more importantly, the California Legislature decided to extend its labor code liability beyond the employment context.  California’s new law places joint and severe liability upon anyone who advises an employer to misclassify workers as independent contractors.  This could adversely affect property managers as well.

 Lastly, there is the problem of having an independent contractor actually lawfully declared an employee who is then injured making the Association responsible for workers compensation benefits.  If the Association has no workers compensation policy in force, this could create a financial liability to the Association. Accordingly, we recommend that every Association carry a minimum premium workers compensation policy (currently around $600.00 annually) and that legal counsel be involved in determining whether an individual is truly a contractor or employee.

Please feel free to contact us with any questions or comments. 

 **The information contained in this HOA Tip of the Week is for information purposes only and is not specific legal advice or a substitute for specific legal counsel.   Readers should not act upon this information without seeking professional counsel.    If you do not want us to contact you by email, we will gladly unsubscribe you from our online community by replying to this email with the word “remove” in the subject line**   





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