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The Associated General Contractors (AGC)
Association of the Wall & Ceiling Industry
The Independent Contractor & AB 5
As of July 1, 2020, per Assembly Bill 5 (“AB 5”), a new test called the “ABC test” applies when determining employment status for workers’ compensation purposes
California Legislative Information regarding Assembly Bill No. 5
Independent Contractors Definition:
- An Independent Contractor is someone who provides a service on a contractual basis
- They receive 1099 documentation and your company does not withhold taxes
- Independent contractors typically work with multiple clients providing a specific type of service
The ABC Test must meet three criterion:
The ABC test as distilled in AB 5 prohibits a hiring entity from classifying a worker as an independent contractor unless the hirer can establish that:
1. Free From Control
The Independent Contractor is not controlled or takes direction for the performance of their work by your company
2. Outside the usual course of business
The Independent Contractor performs work that is outside of the industry that you are in.
3. Customarily engaged in business of the same nature
The Independent Contractor is engaged in an independently established trade, occupation or business involved to perform work.
Employee Definition:
- An employee generally includes day labor, leased employees, borrowed employees, part-time/full-time employees - - Workers who receive W-2 tax form
- Your company withholds income tax, Social Security, and Medicare from wages paid
Sub-contractors Definition:
Sub-contractors are business entities independent of your company or organization; they are not your employees.
Your company does not control the Sub-contractor or their employees.
You must obtain Certificates of Insurance from the Sub-contractors, be named as additional insured on the Sub-contractors policy and make sure that they have same or higher limits.
Excluding Independent Contractors specific conditional exemptions from the ABC Test:
Those industries exempt from the ABC Test will continue to use the existing Borello test for determining whether or not the worker must be included under your work comp policy.
Resources:
Understanding the ABC test for independent contractors in California
Independent contractor versus employeeAB-5 Worker status: employees and independent contractors: Assembly Bill No. 5
