Employee or Independent Contractor?

downloadHow the California Supreme Court Leans

If you’ve been reading recent HR and employment law newsletters, you know that the California Supreme Court just cracked down on employers who classify individuals as independent contractors­—as opposed to hiring them as employees.

The newsletters describe the new stringent “ABC “test necessary for employers to prove to defend their classification of an individual as a contractor.

Under this new ABC test, a worker will be presumed to be an employee unless the employer provides proof of all the following prongs:

  • (A) That 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) That the worker performs work that is outside the usual course of the hiring entity’s business; and
  • (C) That 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.

Evaluating the Risk

The government’s interest is in collecting taxes and protecting employees by requiring workers’ compensation insurance. That is why the presumption is that an individual is an employee. Given the new stance of the Court, now it will be far more difficult to prove the independent contractor classification.

In the past, when asked if an individual could be classified as an independent contractor, I answered that the person was probably an employee. In light of this ruling, that advice is doubly true.

Whatever savings you achieve in benefits, overtime, and taxes, they pale in comparison to the fines and legal costs you’ll face if you don’t have the “ABC” proof necessary to defend your decision.

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