AB-5 went into effect on January 1, 2020, yet it seems like some California employers are still struggling with understanding the main differences between who can be a 1099 Independent Contractor versus who must be a W2 Employee.
In case your business is bringing someone new on, it is important to remember that in California, unless you are hiring one of the statutorily exempt types of employees, it has become increasingly difficult for companies to categorize someone as an independent contractor. The test for determining the difference between an independent contractor and an employee is a three part test. Under this test, a worker is presumed to be an employee unless the company proves ALL of the following:
(A) The worker Is free from the control and direction of the company in performing work, both practically and in the contractual agreement between the parties;
(B) The worker performs work that is outside the usual course of the company’s business; and
(C) The worker is regularly engaged in the trade the worker is hired for, independent of work for the company.
As mentioned above, there are some statutorily exempt occupations. These exempt occupations include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.
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This article is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance. Readers should not act upon information in this article without professional counsel. This material may be considered advertising under certain rules of professional conduct.