What is ABC testing by independent contractors?

Many of my clients fall into the trap of misclassifying employees. Although it is easy to give up having full-time employees on the payroll, the IRS has very strict regulations on this classification. “It’s not that simple” Well, I just want to hire this person for six months;. Therefore, I urge my clients to work with HR, lawyers or me to classify their employees.

Each state may perform differently, so we will use the California test, as described in the California Supreme Court case. The decision is to establish a wage ban (national wage, working hours and working conditions requirements). “; Dynamex case”; describes the decision-making process for determining the status of independent subcontractors only for payroll purposes. This event only affects California, but California is usually the leader of such events.

The court said that only when the following three conditions are met can old comrades become independent contractors.

1. According to the work performance contract and facts, workers are not controlled and guided by the employing entity in work performance.

2. The business performed by the employee is beyond the normal business scope of the recruitment entity.

3. Labourers engage in independently established industries, occupations or businesses with the same nature as those generally engaged in.

Why is ABC test important

Let’s look at these test elements in more detail. How this change will affect the future of the enterprise must consider the way to classify employees. Three tests must be met at the same time.

A. “; Control and direction ; The requirement of independent contractors has been used for a long time in the routine tests used by the IRS. The IRS focuses on three control factors: behavior, finance and relationship control. The IRS also reviews each business on a case by case basis. None of these factors is considered decisive. Even if there is a contract However, this in itself is not proof of the independent contractor relationship. It is not surprising to include this element. This is the basis for defining independent contractors.

B. “; Work outside the normal course of work of the employing entity This factor is a quite new turning point. This concept began in a short-term economic enterprise like Uber. Even if the control and direction requirements are met, Uber drivers seem to work within the normal business scope. Uber is about drivers. Uber drivers drive people away. It is a direct function beyond specific business core functions. Yuan includes business types that can be outsourced, such as company maintenance, payroll and accounting, as well as IT and call center technology businesses.

C. Finally; Habitual participation ; Independent business factors further limit the possibility of these workers becoming independent contractors. The types of workers belonging to this category will become experts, especially licensees. They can have their own practices, or work for various clients within their professional responsibilities. These independent professionals are crazy Including the occupation committed, including physical therapy, massage therapist, certified public accountant, free artist, spinal surgeon, etc. The IRS lists veterinarians, subcontractors (construction industry), subcontractors, public stenographers, etc.

In summary, the ABC test provides a good outline of when we can classify workers as independent contractors.

How does the ABC exam affect my business?

The law is changing. Some states adopt the ABC test as law, but others can only use it in specific circumstances, such as determining unemployment insurance eligibility.

Court cases continue to emerge throughout the country. Taking Uber as an example, the court took different positions on this issue. A court judge in Philadelphia, US, said that Uber’s luxury car driver was an independent contractor, but the New York Unemployment Insurance Commission determined that Uber’s driver was an employee. Use “; Control and Direction” in both cases; As standard.

What laws should I obey? State or federal?

This is confusing when federal and state laws conflict. What are the rules? General rules pointed out by counsel. Com, as an employer: “Abide by the most tolerant laws for employees”, which is why the basic state of the federal and state is the reason for employees. The burden of proving the identity of the independent contractor shall be borne by the Employer.

The scope of state laws may be limited, just as some states only use the test for unemployment compensation. Companies can be audited or reviewed by federal or state regulators.

What should I do?

If your company thinks you may need to reexamine the identity of some workers you employ, start by hiring lawyers. You should review the current employment laws of the state and ensure that your lawyer keeps you informed of problems and changes.

If workers are not classified correctly, it may mean fines, fines, retroactive payments of wages or settlements. It’s worth contacting someone who can solve the confusion.