Existing law, as established in the case Dynamex, creates a presumption that a worker who performs services for hire is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission.
Existing law requires a 3-part test, commonly known as the “ABC” test, to establish that a worker is an independent contractor for those purposes.
Existing law, for purposes of benefit provisions, requires employers to make contributions with respect to unemployment insurance and disability insurance from the wages paid to their employees.
Existing law defines “employee” for those purposes to include, among other individuals, any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. In this bill the Legislature codifies the decision in the Dynamex case and clarify its application.
The bill provides that for purposes of the provisions of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that: ABC TEST
A. the person is free from the control and direction of the hiring entity in connection with the performance of the work
B. the person performs work that is outside the usual course of the hiring entity’s business
C. the person is customarily engaged in an independently established trade, occupation or business
If a court rules that the 3-part test cannot be applied, then the determination of employee or independent contractor status will be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello).
The bill exempts specified occupations from the application of Dynamex as codified in the codes, and instead provides that these occupations are governed by Borello.
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.
What are your workers, independent contractors or employees?
Many small and medium-sized businesses have opted to enlist the services of a Professional Employer Organization (PEO) to make reclassification less burdensome. TEXT US us if you'd like to learn more how a reputable PEO serving your industry can help call 1-760-413-9274. CALL US
Your PEO should be able to provide close estimates regarding the direct costs associated with classifying each person as an employee, including taxes, impact on workers’ compensation insurance, health insurance, unemployment insurance, and more factors.
The AB5 Law
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