Whether an individual is an employee or independent contractor is significant to associations. If a worker is an employee, the association is responsible for payroll taxes, federal and state unemployment insurance, and federal social security and medicare withholdings. In addition, the association must provide worker’s compensation insurance and comply with state and federal laws protecting employees.
On April 30, 2018, the California Supreme Court adopted a more stringent test for determining whether individuals are employees or independent contractors. Previously, there was no presumption of status and multiple factors were used to determine whether an individual was an independent contractor. Now, an individual is presumed to be an employee and the burden is on employers to show otherwise.
The court adopted what is known as the "ABC Test." Under this test, workers are presumed to be employees unless the business (HOA) demonstrates the worker satisfies ALL three of the following conditions:
A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
B. The worker performs work that is outside the usual course of the hiring entity's business; and
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
To review the court's ruling, see Dynamex Operations West v. Sup. Ct.
Recommendation: Associations should have legal counsel review their independent workers to determine if they are truly independent contractors or employees of the association. Misclassifying someone could have significant ramifications related to minimum wage requirements, overtime, and payroll withholdings. See "Employee Misclassification."
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.