
Scenario 2
An ice cream delivery app, Scoops, hires local cyclists to deliver ice cream.
Know the law, protect your business.
AB5 is built upon a landmark California Supreme Court case which crystalized the differences between independent contractors and employees. The current version of the law states that employers must use the ABC test to prove that a worker is, in fact, an independent contractor.
What is the ABC test? It is a set of three conditions that must all be satisfied in order to define someone as an independent contractor.
The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
The worker performs work that is outside the usual course of the hiring entity’s business
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed
Newbury, a marketing company, hires Rosemary, owner of Noms Catering, to cater an event.
An ice cream delivery app, Scoops, hires local cyclists to deliver ice cream.
The A in the ABC test is focused on understanding the nature of the relationship between the business and the worker. Condition A looks at how much freedom a worker has and how much control a business exerts in when, where, and how the work is completed.
While condition A focuses on how a worker performs work for a business, condition B is concerned with the nature of the work being performed. The crux of the question is whether the work is essential to or part of the usual business of the hiring company. This concept is clarified further by understanding whether the hirer has employed workers in a W-2 status to perform similar work in the last year. If they have, the work appears more essential to the business.
The last condition in the ABC test focuses on whether the worker can credibly demonstrate that they have an established independent business, which is separate from the business hiring them for a specific project or task.
Rosemary, owner of Noms Catering, is an independent contractor to Newbury marketing.
Under AB5, she satisfies all the criteria in the ABC test.
In contrast, the cyclists for Scoops are not independent contractors.
Because they cannot satisfy all the criteria laid out in the ABC test, Scoops would need to make the cyclists their W-2 employees in order to continue using them for deliveries in California.
While the ABC test is the primary determinant of whether a worker is an independent contractor, there are exemptions to this test under the law. Some professionals like lawyers, architects, and physicians, are subject to another set of criteria called the Borello test. Borello is a set of 13 criteria that help to determine independent contractor status. Unlike the ABC test, which requires all elements to be satisfied, the professions subject to the Borello test do not need to satisfy all 13 criteria. These criteria help determine if the worker is under the control and direction of the hiring business.
When it comes to certain professional services providers such as marketers, graphic designers, writers, and photographers, there is a potential exception to the ABC test. The law outlines six criteria that must first be met in order to use the Borello test instead of the ABC test. These criteria aim to establish that the worker is part of a business that is properly licensed, insured and wholly different than the hiring business. They are:
In order to avoid improper worker classification, it’s important to understand the ins and outs of the law. When does the ABC test apply, when do you use other criteria, and when are workers exempt from AB5 altogether? What do you do if you find that your workers no longer qualify as independent contractors?
The good news is that there are options that help companies easily comply with AB5. For example, Aquent’s employer of record service, Square Deal, allows you to maintain the flexibility to work with freelancers, keep the talent you currently use, and provide them the employee status, pay, and benefits they deserve under the law. Interested in finding out more about how Square Deal works?