Determining whether someone working for you is an employee or an independent contractor used to be easy. If the person worked for your business a certain number of hours per week, they were an employee with rights to benefits and overtime pay (when applicable). If the person didn’t meet those criteria, he or she was considered an independent contractor.

Back in 1987, the Internal Revenue Service (IRS) developed a list of 20 factors to examine in determining whether an employer-employee relationship exists. Based on case law and judicial rulings, the IRS determined that the degree of importance of each factor varied, depending on the occupation and context in which the services were performed.

But that all shifted last year here in the Golden State with the passing of California’s Assembly Bill 5 (AB5), which was signed into law by Gov. Gavin Newsom in September 2019 and went into effect on Jan. 1, 2020. That bill classifies most workers as employees, placing the burden of proof for classifying workers as independent contractors on the hiring entity (i.e., the small and medium size business, not-for-profit, or enterprise).

In essence, a worker is to be treated as an employee unless the business can prove otherwise. Another way to put it is that under AB5, it is California law — not businesses — that determines who is an independent contractor and who is not. It’s a fairly rigorous law, and both business owners and workers are understandably confused by it.

In this post, we set out to help you determine whether a person working or performing work for you is doing so as an employee or as an independent contractor under California’s AB5 law.

The ABC Test

The California bill replaces the common law test (the Borello test described later in this post) with the so-called ABC test to determine whether a worker is an employee or an independent contractor in California. And if you’re wondering why the test is named “ABC,” it’s because it features three parts — a Part A, a Part B, and a Part C.

For purposes of California employment laws, the test applies to those requiring minimum wage, overtime pay, unemployment insurance, workers’ compensation insurance, and paid family leave. As an aside, AB5 does not change how out-of-state workers are classified.

Under the rule established by AB5, hiring entities are now required to classify workers as employees unless the person in question meets all the following conditions of the ABC test: Continue reading… Continue reading… Continue reading…