August 9, 2018
CA Adopts ABC Test to Evaluate Independent Contractor Status
Posted by Leslie Herrarte
Effective April 30, following a state Supreme Court ruling, California became one of the newest states to adopt the “ABC test” for determining whether a worker is an employee or an independent contractor. This test is considered the toughest analysis applied in determining whether a worker is properly classified as an independent contractor.
The ABC test presumes that all workers are employees and permits independent contractor classification of a worker only if the hiring business can prove all three of the following:
A. Absence of control – The worker is free from control or direction in performing the work both by agreement and in reality.
B. Business is unusual and/or away – The work is performed outside the usual course of the company’s business or away from any of the employer’s facilities.
C. Customarily independent contractor – The worker is customarily engaged in an independent trade, occupation or business.
Failure to establish all of the above three factors results in a determination that a worker is an employee.
It is the employer’s responsibility to correctly classify the worker as an independent contractor. Failure to meet the test will expose your company to back pay and fines for failing to pay federal social security and payroll taxes, unemployment insurance and workers compensation benefits, and for violation of various federal and state statutes and regulations governing retirement wages, hours and working conditions.
If you are ever in doubt, you can get a definitive ruling from the IRS as to a newly hired worker’s status by completing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Form SS-8 contains a series of questions designed to determine the extent of the employer’s right to control the result and means of the work being performed by application of the factors considered by the IRS.
You can obtain a copy of the form by going to www.irs.gov or by calling (1-800-TAX-FORM). Anyone can submit an SS-8 form to the IRS, including an employee, employer or independent contractor.
If you’d like more information about worker classification, reach out to our HR Solutions team.
Leslie Herrarte is a consultant on the HR Solutions team. She has over 10 years of experience in payroll and human resources and is currently studying for her Certified Payroll Professional (CPP) certification. She is a member of the American Payroll Association.