Classifying Your 1099s in CA Just Got Tougher!

Surprise, surprise…there’s a new legal standard in California and it has to do with Independent Contractors (I’m going to call them “ICs” from here on out). On April 30, 2018, the California Supreme Court announced a new “ABC” three prong test to determine if someone is an independent contractor.

If the IC does not meet any of these requirements, they should be classified as an employee:

  1. 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;
  2. the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. 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.

Let’s quickly break this down.

A = Free from Control and Direction

Employees are typically NOT free from control and direction and ICs generally are. You wouldn’t tell your CPA when to come to work or how to do his/her job, right? BTW, this standard already existed on the previous classification standards on the federal level.

B = Outside Usual Course of Business

The case that this test stemmed from, Dynamex Operations West, Inc. v. Superior Court, was a case that determined the deliver drivers at Dynamex Operations West, Inc., a delivery company, were employees NOT ICs. Per the case, the drivers’ roles were “most clearly comparable” to those of employees included these drivers whose “services are provided within the usual course of the business” and thus were “ordinarily viewed by others as working in the hiring entities’ business.”

Simply said, if a worker does what the business does, the worker is an employee NOT an IC. Like in this case, drivers of any trucking or transportation company would be employees.

C = Customarily Engaged in Independent Trade

The IC has to be an actual business and not one formed because the company asked them to make a business to look like an IC.

What now?

I suggest taking a look at all of your ICs and determining if they are truly ICs or if they are employees.

Of course, I can help you do that as well. I will also listen to you vent about how these laws are a pain in your backside…I’m a good listener.

By: LeiLani E. Quiray, Founder and HR Pro @bethechangeHR


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