California’s top court makes it more difficult for employers to classify workers as independent contractors.
If you have independent contractors as workers in your business you need to review and take action to comply with the ABC test.
What Is the ABC Test, and How Can Small Business Owners Comply? The laws surrounding worker status have long been ambiguous. Deciding whether a worker is an employee or independent contractor has been largely left up to the employer’s discretion. Not anymore. Thanks to California’s 2018 court ruling, workers are now presumed to be employees. After implementing a new ABC test as law, California has greatly limited the number of workers businesses can call independent contractors.
More than 20 states apply the ABC test. In one form or another. As the ABC test gains more and more traction nationwide, you may need to change how you classify your own workers. So, what is the test all about, and how will it impact your small business?
The ABC test is a three-part test employers must meet if they want to classify a worker as an independent contractor. The burden now falls on employers to prove workers are independent contractors. The ABC test makes it more difficult for employers to try to classify workers as independent contractors.
In April 2018, California’s Supreme Court adopted the ABC test following the Dynamex Operations case.
In the court case, delivery drivers who had worked for Dynamex sued the company for classifying them as independent contractors and not employees. Using the standards of the ABC test, the California Supreme Court ruled against Dynamex, saying that the workers should have been employees and not independent contractors. As a result, using the ABC test became law in the state of California.
Under the ABC test, a worker is only an independent contractor if they meet all three parts of the test: A) The worker is free from the control and direction of the hirer in relation to the performance of the work, both under the contract and in fact, B) The worker performs work that is outside the usual course of the hirer’s business and C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hirer
The second factor of this ABC test means you can’t hire someone to perform similar duties to that of your employees and expect them to be classified as an independent contractor.
Many employers in California who have classified workers as independent contractors (1099) may need to convert that classification to an employee class. Employers will need to review their workers classification and may have to convert some independent contractors to employees.
Author: Robin Noah, Executive Coaches of Orange County, www,ECofOC.org