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:
A. 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; B. The worker performs work that is outside the usual course of the hiring entity’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 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)
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.
Legal Disclaimer: The HR Support Center is not engaged in the practice of law. The content in this email should not be construed as legal advice, and does not create an attorney-client relationship. If you have legal questions concerning your situation or the information you have obtained, you should consult with a licensed attorney. The HR Support center cannot be held legally accountable for actions related to its receipt.