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PAYDAY Workforce Solutions Blog

Recently, the California Legislature codified much of a previous California Supreme Court ruling relating to independent contractor classifications. For a worker to be properly classified as an independent contractor (sometimes called a “1099 contractor” or “1099 employee”), they must pass certain tests under federal and state law. California employers have been subject to the “ABC test” since April of 2018 because of a California Supreme Court ruling. Effective January 1, 2020, the ABC test will become part of California’s statutes as well.

The fact that the law is now written into the Labor Code is
drawing significant attention, much of which is focused on the gig economy and
its workers. But the test applies to all employers. The primary difference between
the law now and the law as of January 1 is that the new statute includes
certain types of workers that will not be subject to the ABC test, but instead
a less strict test (Borello).

The ABC Test

A worker may be classified as an independent contractor only
if:

  1. The worker is free from the control and
    direction of the hirer in connection with the performance of the work, both
    under the contract for the performance of such work and in fact;
  2. The worker performs work that is outside the
    usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an
    independently established trade, occupation, or business of the same nature as
    the work performed for the hiring entity.

Unless all three elements are true, the worker will be
considered an employee. A more in-depth look at each of these three factors can
be found on the HR Support Center by searching for ABC test with the search
bar.

Be aware that the right to be treated as an employee cannot
be waived, so even if a worker begs to be paid as an independent contractor and
signs something to that effect, they must be treated as an employee unless they
pass the applicable test.

The Exceptions

The workers listed below will not be subject to the ABC
test, but instead the Borello test. The factors evaluated in Borello still
create a fairly high bar for classifying a worker as an independent contractor,
which is explained below.

Workers exempt from the ABC test but subject to Borello
include the following:

  • Licensed insurance agents
  • Certain licensed health care professionals
  • Licensed lawyers, architects, engineers, private
    investigators, and accountants
  • Registered securities broker-dealers or
    investment advisers
  • Direct salespeople who are exempt from
    unemployment insurance
  • Real estate licensees (may be subject to tests
    other than Borello)
  • Commercial fishermen
  • Certain providers of professional services (full
    list in the HR Support Center)
  • Others performing work pursuant to a subcontract
    in the construction industry if certain criteria are met

The Borello Test

The Borello test is a multi-factor test, similar to the
DOL’s Economic Realities test for independent contractors. The primary factor
is whether the employer has control or the right to control the work done as
well as the manner and means in which the work is performed. Borello provides
eleven more factors or questions that will help you determine the appropriate
classification for a worker. An employer must evaluate the answers as a whole
and determine whether the working relationship and conditions point toward an
employee or independent contractor relationship. You can find this test by
searching for Borello using the search bar on the HR Support Center.

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