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.
|ABC Test (MUST MEET ALL THREE CRITERIAS)|
|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 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 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.|