Anyone who has attended one of our classes related to insurance obligations for homeowners associations has probably heard us recommend associations carry workers’ compensation insurance.  The often asked question is, “Why should we carry workers’ compensation insurance if we don’t have employees?”

First, you may have employees, as defined by the Colorado Workers’ Compensation Act, and not even realize it.  The statute presumes that any person hired to perform services for pay for another is an employee, unless that person falls into some limited exceptions under the law.  The most likely exception applying to associations is independent contractors.

In order to qualify as an independent contractor, and therefore rebut the presumption of the worker being an employee of an association, the worker must be free from the business control and direction of the association in relation to how the work is performed.  Also, the worker must be customarily engaged in an independent business related to the work being performed for the association.  Some of the factors to take into consideration in this regard are:

  • Whether the worker must work exclusively for the association
  • Whether the association establishes a quality standard that goes beyond just providing plans and specifications and which involves instructing the worker how to actually perform the work
  • Whether the association pays a salary or hourly rate as opposed to paying a fixed or contract rate
  • Whether the association provides extensive training
  • Whether the association can terminate the worker without a breach
  • Whether the association provides tools and benefits to the worker

If you answered yes to any of the questions above, the worker may be an employee of the association under the statute, and therefore entitled to workers’ compensation coverage.

A written contract between an association and a worker can help to rebut the presumption that a worker is an employee, but it is not irrefutable and the facts and circumstances of any particular case must still be taken into consideration.

Second, in relation to property owners, the requirement to provide workers’ compensation insurance travels up the chain.  Many associations assume that because they hire an independent contractor, that the independent contractor is liable for maintaining workers’ compensation coverage for its employees.  However, if the contractor fails to obtain or maintain the coverage, and one of the contractor’s employees is injured on the association’s property, the association will be deemed to be the statutory employer of that injured employee.  Therefore, it is important to always require any contractor hired by the association provide proof of workers’ compensation coverage.

Third, even if an association in good faith considers all of its workers to be independent contractors, misclassifying a worker can have significant ramifications for an association.  Not only may the association be liable for paying income taxes to the government and paying overtime benefits to the employee, the association could be subject to significant penalties and fines from the state for not carrying workers’ compensation insurance.  The Division of Workers’ Compensation can issue a cease and desist order against an association to stop operations until insurance is obtained.  Also, the fine for failure to carry required workers’ compensation insurance can be up to $250 for every day that the employer fails or has failed to maintain the required workers’ compensation insurance.  Depending on how long an employer has failed to carry the required insurance, the amount of the fines could be substantial.

Given the broad definitions of employees and employers subject to workers’ compensation insurance, and the potential for large fines if workers are misclassified, it is important for associations to review their practices, contracts, and operations to make sure they are properly insured if necessary.  Your association’s legal counsel can help to guide you through any questions you may have.

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