Do condominium associations need Worker's Compensation? For a large high rise with 24 hour security, building engineers and janitors the answer is obviously yes, since all these people are full time employees of the association. For smaller condominium associations the answer is less obvious.
Recently the board treasurer of a 16 unit condominium association asked me about whether his condominium association should have Worker's Compensation Insurance.
With only sixteen units, I asked whether they had any employees on their payroll. He said no. They do have a women who cleans the hallways twice a month. They also have a person who plows snow off the driveways. And they have a scavenger service that picks up the trash. Occasionally, they hire contractors to do work on the air-conditioning, paint, and do other repairs to the building.
Since they have no employees on their payroll, my question was why would you think that you need Worker's Compensation insurance. His answer was that his insurance broker suggested it. The insurance broker explained that since some of the contractors that they hire might not have Worker's Compensation insurance for their employees. Even if this was true, I questioned why Worker's Compensation insurance would be necessary since the condo association has general liability insurance coverage and general liability insurance covers suits by people injured on the property.
One of the arguments that insurance brokers and insurance companies make is what if the person files a Worker's Compensation claim. But unless their real employer has Worker's Compensation coverage, that person (and their lawyer) would probably prefer to file a traditional personal injury suit in the county court. By doing so, they would have the chance to get a much bigger verdict since they could make a claim for pain and suffering (usually several times the amount of their medical bills). Worker's Compensation claims are resolved under a different system and claims for pain and suffering damages are not allowed. Arguably, it would be malpractice for a personal injury lawyer not to file a lawsuit in the county court system where they could get their injured client more money.
The fundamental question is could the employees of the businesses that the associations contracts to perform services be considered employees of the association? The IRS has a number of criteria they consider in determining whether a person is an independent contractor or an employee http://www.irs.gov/businesses/small/article/0,,id=99921,00.html. The Illinois Supreme Court has considered this question too. The Illinois Supreme Court looked at whether the person's services relate to the business purpose of the company. In the Illinois Supreme Court case the company was in the trucking business and the person was an owner/operator of a truck. The court found that the owner/operator was an employee because the trucking company's business purpose was trucking and truck drivers were obviously necessary. In this situation, the business' purpose is a condo association. They are not running a cleaning service company. Similarly, the association is not in the business of snow removal, painting or roof repair.
Applying the IRS criteria, the cleaning lady should be considered an independent contractor. The cleaning lady can decide on what day of the week to come. She can decide what time to start (morning or afternoon). She can hire an assistant to help her. She can send a substitute. She receives a flat fee for the services. The few hours per month she cleans the association's hallways is not her only source of income. She cleans on the other days at many other places. All of these suggest that the IRS would agree that the cleaning lady is an independent contractor.
The snow plow company's relationship is similar. So, it too would be an independent contractor and not an employee.
Then why would the insurance broker and the insurance company think this association needs a Worker's Compensation policy.
There could be many reasons why an insurance broker would recommend that a condominium association with no employees purchase a Worker's Compensation policy. One reason is that the broker wants the client, the association, to be protected to the maximum extent possible. Another reason is that the broker wants to protect itself from a possible claim by the association against the broker for not recommending all the possible types of coverage. One could be cynical and say "follow the money." The insurance broker receives another commission. The insurance broker is going to sell the general liability policy anyway so selling the association a Worker's Compensation policy is an additional policy and an additional commission.
Following the money, the insurance company would rather place a claim under a worker's compensation policy than under a general liability policy because they are likely to pay less. Worker's Compensation claims are handled initially by the Industrial Commission, they are usually resolved more quickly and under Worker's Compensation law the claimant is not entitled to damages for pain and suffering (a significant part of the damages in a traditional lawsuit). So, insurance companies have an incentive to be able to handle a claim under a Worker's Compensation policy.
Whether a condominium association needs a Worker's Compensation policy depends upon the association's specific circumstances. But for many small buildings it may not be necessary.
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