• Freddie Servin

Telling whether you have an employee or independent contractor

A new law is making significant changes to how businesses classify their employees. Many employees are excited. Some business owners are. . .a bit hesitant.


It’s called AB5 and similar laws have been used in other states but has just been introduced in California.


California AB5 has implement a means for classification known as the ABC test.


The way courts look at it, it’s the hirer’s burden to show that a worker is an independent contractor. You, the hirer, prove this by showing all three things below:


(A) show that the worker is free from your control and direction in connection with performing the work, both under the contract for the work performed and in fact.


(B) show that the worker performs work that is outside the usual course of your organization’s business/scope.


(C) show that the worker is engaged in an independently established trade, occupation, or business of the same nature as the work performed.


So now you know why it’s called the A-B-C test. But, what does this mean for you as a hiring entity? Here are the next steps you should take:


Go through the ABC test with any new hire you’re planning to hire as an independent contractor, to make sure you’re classifying them correctly.Take an inventory of all your current independent contractors and perform the ABC test on them.If any independent contractors don’t meet all three A-B-C criteria, reclassify them as employees so you’re aligned with the new law (this helps you avoid future headaches).


Now, you may be asking “Do I need workers’ compensation?”


Workers’ compensation coverage covers lost wages and medical treatment resulting from an employee’s work-related injury or illness, including services that help an employee recover and return to work. If you are switching someone from independent contractor status to employee status, then yes, you will need to get them workers’ compensation coverage.


Have any questions about the new law? Colony Insurance Solutions team members can help you alter your course and make sure you’re compliant. Give us a call 858-277-1585 or email support@colony.agency today.

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