Handyman

Is the handyman an worker? How AB5 might enhance HOA payrolls – Orange County Register

If a plumber is called to fix a problem at an HOA, is he now an Assembly Bill 5 employee rather than a contractor? Not necessarily, but there are problems. (iStockphoto)

Traditionally, many companies hire part-time or casual workers and refer to them as “independent contractors.” The IRS and the State Franchise Tax Board had guidelines to determine who is an employee and who can fairly be called an independent contractor. There were many factors that played a role in this characterization.

HOAs often hire what they consider “independent contractors” to perform specific maintenance, repair, or other routine tasks. This avoided wage tax deductions and other legal obligations.

All that began to change in 2018 with a case called Dynamex in the California Supreme Court, which replaced the traditional test of employment versus the independent contractor with a simple three-part test, often referred to as the “ABC” test. That ruling was included in Assembly Bill 5, which Gov. Gavin Newsom signed into law after the passage of the legislature.

AB 5 creates a new Labor Code section 2750.3 and affects all hirers, including HOAs, who use “independent contractors” who may be reclassified as “employees”. This new law adopts the “ABC” test, which categorizes an employee as an independent contractor if: A) the hirer does not actually and contractually control or direct the individual in the course of their work; B) The work performed is outside the borrower’s normal business; and C) The worker also normally and independently performs that work for others.

If the hired person meets the three requirements, they can be treated as an independent contractor. As ever, the element of control over how the person does their work is key.

Some HOA service providers are specifically exempt from the law, such as lawyers, architects, engineers and accountants. The more relevant area for clubs are employed people who work on the HOA property and are paid by the HOA.

An example of an independent contractor would be the plumber called in to fix a leak. The plumber is not supervised or instructed on how to perform the repair. The plumber usually works for others as well, and HOA’s business is not plumbing.

On the other hand, a less clear answer might apply to maintenance or janitorial workers paid by the HOA. Such workers are often directed by the manager or board of directors. Since HOA’s job is to maintain the common area, isn’t general property maintenance and cleaning part of HOA’s “business”?

Conversion of employees to employee status may result in sick leave and other obligations for the HOA, including payroll withholding levies. An employee might try to challenge their termination or claim discrimination. In addition, employees are subject to fair employment and wage and hour laws. Associations should consult their insurance broker for workers’ compensation coverage.

There will be public resources to educate HOAs and managers on the difference between employee and independent contractor status. The California Department of Industrial Relations is developing a website, but it is not ready yet. The California Chamber of Commerce provides information at calchamber.com.

Managers and their boards should be aware of the simpler standard and avoid misrepresenting workers as “independent contractors” where the law does not support that status. Also remember that staff (employee) discussions are intended for closed sessions, while independent contractors are vendors and should be discussed in open sessions.

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a partner in Richardson|Ober|DeNichilo LLP, a California law firm known for advising community associations. Send questions to Kelly@rodllp.com.

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