Blog



4 Rules To Distinguish Homeowners Association Contractors from Employees


Independent contractors and employees are not the same, and it’s important for your HOA Board to understand the difference.  This distinction makes a big difference in how you withhold taxes, and the IRS makes it their business to know if you are doing it correctly.  It’s important that you understand how to distinguish contractors from employees to avoid legal consequences.

 

Most associations use contractors to handle maintenance, ongoing monthly services, and seasonal work. It makes good business sense to outsource services that help you keep your homeowner association at its best while reducing labor costs. However, be aware that a vendor relationship should never look like an employer-employee affiliation.

 

The government has definite rules to distinguish the difference between contractors and employees. Do the contractors for your HOA meet these four guidelines?

 

Who manages their business records? Contractors operate under their name or their company name and have their own employees. Business records belong to them, and they invoice for their completed work. While you may recommend their services to others if you are happy with their work, the contractor is responsible for advertising his/her business services.

 

Who controls their work? If you control how, when, and where your contractor does his work, he/she is most likely classifiable as an employee. Contractors are independent. While you can set deadlines and schedule meetings with a contractor, how he or she works to meet the deadline is the contractor’s choice.

 

Who owns the cell phone, computer and other office equipment? Your contractor is responsible for furnishing his/her office and paying for business equipment in most situations. If you’re furnishing general equipment for someone, the IRS may consider that person an employee. There are exceptions, such as purchasing a laptop for someone to program for you.

 

Is your contractor free to work for other clients? Contractors have more than one client, and they don’t need your permission to solicit or accept other business. This doesn’t mean that your contractor must have other clients, but additional clients will certainly help distinguish him/her as a contractor.

Other Blog Posts by Category


Check out BePropertyWise.com for additional educational resources, videos, checklists, and more. Learn more about these free resources at BePropertyWise.com.