Determining whether an employee could be classified as a independent contractor was already tricky; however, recently the California Supreme Court made it even harder for businesses to classify workers as independent contractors versus employees. In fact the court ruled that all workers are to be considered employees unless the employer can prove they are actually independent contractors. This leaves the burden of proof on the employer, luckily, the court has developed what is called the ABC Test to help employers figure out how to treat their workers.
The ABC test requires the employer to overcome on tests A, B and C for a worker to be considered an independent contractor. Below is the details of what is needed to be passed before a worker can be treated as a independent contractor:
A. The workers must clearly be free from the hiring entity's control. This means that the company cannot control or direct what the worker does, either by contract or actual practice. The employer may hire the worker to do a specific job, however, it is up to the worker how it gets done.
B. The workers must perform work that is outside of the hiring entity's usual course of business. For example, if the employer is a ride service, then the driver is considered an employee as they are within the hiring entity's usual course of business. If you hire a consultant to help with internal processes, then they would be considered an independent contractor, assuming they still meet tests A and C.
C. The worker must be engaged in an independently established trade, occupation or business. It's not enough that the company doesn't prohibit the worker from taking on new clients. Instead the court will look at additional factors such as whether the worker is licensed, or incorporated, whether they advertise their services, or that they offer their services to the public or other potential customers.
As was stated before, it is the employer's burden to prove that all three criteria are satisfied before classifying any worker as an independent contractor. For further information please give Crystal Clear Accounting a call @ 951-551-8621 or email at email@example.com.
Source: American Institute of Professional Bookkeepers, July 2018