The California Supreme Court has approved a new standard for determining whether a worker is an independent contractor or an employee.
There is a three-part test to be met by every employer to properly classify a worker as an independent contractor. The test is titled as the “ABC” test.
Employers can classify a worker as an independent contractor if:
A. The worker is not controlled and directed by the hirer as to how the work is performed, whether under the contract or in fact; and B. The work performed by the worker is different from the line of work of the hiring entity; and C. The worker is regularly involved in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
It’s important to note that if a hiring entity does not prevent a worker from engaging in an independent business, it still does not satisfy part C of the test.
If you are currently paying independent contractors to perform work for your business, you should evaluate whether each one of them meets all three elements of the ABC test.
In light of this new development, It is expected that more investigations will be conducted by the California tax authorities on this matter to uncover inappropriate classifications of independent contractors.
Since the new law is effective immediately, business owners should conduct the ABC test as soon as possible to protect their businesses from potential penalties.
At Chexperts Payroll Solutions, we are committed to providing you with valuable information regarding rules and requirements around managing your employees. To discuss how we can support you contact us here…