Properly Classifying Workers as Employees or Independent Contractors
When hiring individuals in connection with your business, it is essential that you properly classify them in accordance with California law. Assembly Bill 5 (“AB5”), enacted in 2019, set the legal standard for ensuring appropriate employee classification by establishing the ABC Test, which is a three-factor test that presumes workers are employees unless they satisfy all of three separate requirements.
In this article, we provide information about types of employee classifications, details of AB5’s ABC Test for determining the appropriate classification, exceptions to the rule, and consequences of misclassification.
Note: This article is designed to help people determine the appropriate classification for workers. This document is not intended to constitute legal advice and cannot substitute for expert consultation. If you have specific questions that are related to your business, it is best to consult an attorney.
Worker Classifications |
Employees Hiring entities generally have greater control over employees than over independent contractors. Things like setting schedules and wages are examples of the types of control hiring entities may exert over employees. Additionally, employees typically have greater rights and protections than independent contractors do. For example, employees generally have rights to:
* Some employees may be exempt from these rights. Independent Contractors Independent contractors typically have fewer rights and protections than employees do. However, they retain some rights like the Fair Employment and Housing Act’s prohibition on harassment in the workplace, which applies to all workers. Hiring entities generally have less control over independent contractors than over employees. For example, independent contractors generally have the freedom to:
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ABC Test |
Under Labor Code § 2775(b), a person providing labor or services is presumed to be an employee rather than an independent contractor. This presumption can be disregarded if the hiring entity is able to demonstrate that the following three conditions (A, B, and C) are all met.
A. Control
B. Course of Business
C. Independent Establishment
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Exceptions |
There are some exceptions to the rule listed above. Some workers may be classified as unpaid interns instead of an employee or independent contractor, but the role has some special requirements. Additionally, some types of workers are presumed to be independent contractors instead of employees. There are also some notable situations that are not valid exceptions.
Unpaid Interns Unpaid interns are workers who do not receive wages or benefits while performing work. To be classified as an unpaid intern, the following conditions must all be met:
The intern(s) must be aware that the internship is unpaid Types of Workers Presumed to be Independent Contractors
More information on workers presumed to be independent contractors may be found here The following do NOT qualify as exceptions to the General Presumption that Workers are Employees
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Consequences of Misclassification |
There are potentially significant consequences to improperly classifying workers, including (among others):
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