Independent Contractors Redefined

As of July 1, 2020, per Assembly Bill 5 (“AB 5”), a new test called the “ABC test” applies when determining employment status for workers’ compensation purposes.

Independent Contractors Defined
  • Individuals that receive 1099 forms.
  • Your company does not withhold taxes.
  • An Independent Contractor is someone who provides a service on a contractual basis.
  • Independent contractors typically work with multiple clients providing a specific type of services, i.e.: Consultants, Bookkeepers, Freelance Writers, etc.
The ABC test as distilled in AB5 prohibits a hiring entity from classifying a worker as an independent contractor unless the hirer can establish that:

A: Free From Control

The Independent Contractor is not controlled or takes direction for the performance of their work by your company.

B: Outside the usual course of business

The Independent Contractor performs work that is outside of the industry that you are in.

C: Customarily engaged in business of the same nature

The Independent Contractor is engaged in an independently established trade, occupation or business involved to perform work.
Employee Definition:
  • Employee generally includes day labor, leased employees, borrowed employees, part-time/full-time employees. Workers who receive W-2 tax form.
  • Your company withholds income tax, Social Security, and Medicare from wages paid.
Subcontractors Definition:
  • Subcontractors are business entities independent of your company or organization; they are not your employees.
  • Your company does not control the Subcontractor or their employees.
You must obtain Certificates of Insurance from the Subcontractors, be named as additional insured on the Subcontractors policy and make sure that they have same or higher limits.
Excluding Independent Contractors specific conditional exemptions from the ABC Test:
Those industries exempt from the ABC Test will continue to use the existing Borello test for determining whether or not the worker must be included under your work comp policy.

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