Community associations in need of a handyman or other services may turn to hire homeowners or community residents to do small jobs within the community on an ongoing basis. The association may be tempted to automatically consider the individual to be an “independent contractor” rather than an employee in order to avoid payments such as employment taxes, employee benefits, overtime pay, workers compensation, income tax withholdings, etc. However, the misclassification of an association employee as an independent contractor could be costly to the association and may result in liability to the Association in the form of owed employment taxes, interest, back-pay, fines, and penalties.
Therefore, it is important that individuals providing services to the association be properly classified. In making determinations, the IRS considers categories of factors including behavior, financial, and the type of relationship to evaluate the degree of control and independence of the worker. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
The Colorado Department of Labor considers the totality of the circumstances when making determinations. Under Colorado law, individuals are presumed to be employees unless and until it is shown that the individual is free from control and direction in the performance of services, both under contract and in fact, and that the individual is customarily engaged in an independent trade, occupation, profession or business related to the work performed. Written agreements may be used to refute this presumption and clarify the proper classification and business relationship between the parties.
In other words, merely calling the individual an “independent contractor” is not determinative for purposes of the IRS or the Colorado Department of Labor. Should you wish to discuss your association employee concerns or need assistance in drafting an independent contractor agreement, please do not hesitate to contact one of our attorneys at 303-432-9999 or [email protected].