One of the traps homeowner associations fall into is hiring "contractors" that aren’t legally contractors. Oh, they may claim they are, but just wait until they have a tax problem or injury and suddenly, the association has just gained a new employee, possibly with a lifelong disability. The IRS has a common law test to determine whether a worker is technically self employed or not. Most have to do with the customer’s "right of control". The following are conditions that could lead to implied employee status. No one condition necessarily triggers it but if a number of them exist, beware. (See IRS Revenue Rule 87-41 for more information)

1. Is the individual required to follow instructions?
2. Do you provide training to accomplish the work?
3. Is the individual regularly employed at association work?
4. Is the work done personally by the individual?
5. Does the association directly pay the individual’s assistants?
6. Is there a continuing ongoing relationship?
7. Are there a set amount of work hours?
8. Is the individual engaged full time?
9. Does the individual work on the association’s premises?
10. Does the individual work according to a schedule set by the association?
11. Is the individual required to submit regular reports?
12. Is the individual paid by time rather than by project?
13. Is he reimbursed for expenses?
14. Does the association furnish the tools and materials?
15. Does the individual have vested interest for performing the services?
16. Can the individual realize a profit or loss?
17. Does the individual work for more than one customer at a time?
18. Does the individual make his services available to the general public?
19. Does the employer have the right to fire the individual?
20. Does the individual have the right to terminate the relationship?

An important element is the ability of the customer to dictate not only the result, but also the process used. To safeguard the interests of the association, use only properly licensed, bonded and insured contractors unless the board consciously elects to hire an employee.

All contactors should produce a business license, liability insurance and/or a verifiable Construction Contractor Board number (if required by the state) to corroborate their claim. Are they listed in the Business Pages of the phone book? Do they have a business card? All these are signs of a legitimate contractor.

Use this 20 Point list to "filter" all new contractors so your homeowner association doesn’t get more than it bargained for.

For more on this subject, see www.regenesis.net.

Published: June 21, 2000

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .