Independent Contractors vs. Employees in California
In September of 2019, Governor Newsom signed Assembly Bill 5. AB 5, which went into effect January 1, 2020, changing the way that hiring entity’s must determine if workers in the state of California are independent contractors or employees, for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commision wage orders.
Most workers are not sure how they should be classified under this new law. Here, employment lawyer Gregory Thyberg discusses the tests that can be used to identify independent contractors vs. employees in California, and explains to workers in Sacramento, CA, and across the state why it is important for them to be sure they are classified properly.
The ABC Test
Under AB 5, hiring entities in California must apply the ABC test to determine if workers should be classified as employees or independent contractors. The ABC test states that a worker is considered an employee by default, unless the hiring entity can satisfy three conditions.
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work - Essentially, if the hiring business has the type and/or degree of control over a worker that an employer typically has over an employee, then the worker is considered an employee.
- The worker performs work that is outside the usual course of the hiring business’s entity - If a worker is providing services or performing duties that are the same as, or similar to, the work provided by regular employees of the business, then the worker should be classified as an employee.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed - An independent contractor should already operate as an independent business at the time they are hired. If they do not provide services to others, and are completely reliant on the hiring entity for their work status, then they should be classified as an employee.
The Borello Test
The ABC test is the California standard for determining whether a worker is considered an independent contractor. However, Sacramento workers in certain industries may be subject to the Borello test. The Borello test takes multiple factors into consideration, including:
- Whether the work is an integral part of the employer’s business
- Whether the worker has invested in the equipment or materials required for their task
- Whether the work requires a special skill
- The length of time the services are to be performed
- The method of payment (i.e. paid by the hour or by the job)
Why Does It Matter If I Am an Independent Contractor or Employee?
Sorting out the parameters that distinguish independent contractors from employees is quite complicated, and many Sacramento workers wonder why it even matters. It is important for workers to understand if they are truly employees, because some employers misclassify workers as independent contractors so they don’t have to provide as many benefits and protections.
Independent contractors don’t enjoy the same rights as employees. Independent contractors can be fired much more easily than employees and they are not entitled to unemployment insurance, minimum wage, or overtime pay, nor are they protected by state and federal anti-discrimination laws.
Get In Touch
If you suspect that you have been misclassified as an independent contractor rather than an employee, you should discuss your concerns with employment lawyer Gregory Thyberg. To schedule a personal consultation, contact our law firm online, or call (916) 204-9173 at your earliest convenience.
