class 1 - independent contractors and wages Flashcards
must know:
Definition of the employer’s duty to provide “reasonable accommodations” to enable a disabled employee to perform the essential
duties of his or her job.
The ABC test to distinguish independent contractors from employees for
purposes of claims for unpaid wages, including overtime.
The alternative Borello test used in determining whether a person
providing services is an independent contractor or an employee where the
ABC test does not apply. Per the :aw at Work column, you should understand that sometimes the end result of the classification is the same under this test and the ABC test.
Which facts in the Ware case lean more in favor of the caddy being classified as an employee and which facts lean more in favor of him being classified as an independent contractor.
How the Ware court ruled in deciding whether Jerry Ware was an
employee or an independent contractor and how the case came out
Wage and Hour Laws Don’t Cover Independent Contractors
Wage and hour laws cover employees not independent contractors
The FLSA considers workers to be independent contractors if they’re economically independent from your business.
How can you tell if they are economically independent?
Do you have the right to control how the individual performs the work, as opposed to simply accepting or rejecting a final product? The more you control the way the work is done, the more the worker looks like an employee.
Does the worker have an opportunity for profit and loss? If the worker bears the economic risk of doing business, then that’s a factor in favor of independent contractor status.
Does the worker have any investment in equipment and facilities?
Do the worker’s services require special skills?
How permanent is the relationship between you and the worker? A long- term relationship—especially one that lasts for a year or more—is a factor in favor of employee status
Are the worker’s services an integral part of your business? If so, it’s more likely that the worker is an employee.
The ABC test background
A growing number of states, including California, have adopted the more stringent ABC test to determine whether a worker is an employee or independent contractor for purposes of state taxes, wage and hour laws, unemployment benefits, workers’ compensation, and more.
The ABC test makes it much harder for employers to classify their workers as contractors
the ABC test
A. the worker is free from the direction and control of the hiring entity with respect to how the work is performed, both under the terms of the contract and in fact
B. The worker performs work that is outside the hiring party’s usual course of business
C. the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
the ABC test prongs
The first prong of the test effectively mirrors the direction and control test used by the IRS.
Under the second prong, the worker must be doing a type of work that is different from what the hiring entity normally performs.
The third prong focuses on whether the worker is engaged in an independent trade or occupation. In our example, the electrician is a tradesperson performing electrical work, so this part of the test would clearly be satisfied.
Some states have exempted certain industries from this test, only apply certain parts of the test, or only use it for limited purposes. It’s possible that some federal agencies could adopt this test in the months or years ahead
California law regarding ICs
On Sept. 4, 2020, Gov. Gavin Newsom signed AB 2257, which — effective immediately and applicable to work performed since Jan. 1 — revises the rules under which a hiring entity may classify a worker as an independent contractor. The new law repeals and replaces AB 5
ABC test (from article)
Under the ABC test, a worker is an employee unless the hiring entity shows the worker:
(A) works relatively free of the hiring entity’s control;
(B) performs work beyond the “usual course of the hiring entity’s business” (usually the toughest part of the test); and
(C) is engaged in an independent trade, occupation, or business similar to the work performed.
The new law continues to apply a more flexible test drawn from the California Supreme Court’s 1989 Borello ruling to licensed California lawyers, architects, engineers, private investigators, and accountants. Certain licensed medical professionals and credentialed securities broker-dealers and investment advisors also continue to be exempt from the ABC test.
california law business-to-business exception
AB 5 limited the business-to-business exception to sole proprietors and business entities that provided services “directly to the contracting business rather than to customers of the contracting business,” among the 12 criteria the contracting entity had to satisfy.
AB 2257 retains the 12 mandatory criteria, but extends the exception for service providers:
(1) whose employees solely provide services to the customers of the contracting entity under the name of the service provider; and (2) that regularly contract with other businesses (so no exclusive arrangements).
But the business-to-business exception continues to be inapplicable to an individual who is not acting as a sole proprietor or formed as a business entity. Becoming a sole proprietor without employees is simple:
(1) pick a name and, if not your own name, register it with the county recorder; and
(2) comply with license, permit, and zoning rules
california law referral agency exception
AB 2257, like AB 5, requires that a service provider connected to clients by a referral agency act as either a sole proprietor or a business entity for the relationship to be exempt from the ABC test. The new measure also continues to require the referral agency to meet about a dozen criteria to classify a service provider as an independent contractor
AB 5 defined “referral agency” as a business that connects clients with 16 distinct services, including tutoring, minor home repair, dog walking, and web design. AB 2257 says that services that qualify for this exception “include, but are not limited to,” most of those in AB 5 plus consulting, youth sports coaching, caddying, weddingrelated services and vendors, and interpreter
california law professional services exception
AB 5 contained a “professional services” exception that applied the Borello test to providers of specified professional services if the hiring entity could show the individual met six criteria, including maintaining a separate business location, which could be the individual’s residence, unless the individual chose to work at the hiring entity’s location; and the individual was customarily engaged in the same type of work with another hiring entity or publicly made their services available to others.
AB 2257 removed the cap on submissions for still photographers, photojournalists, and videographers who:
(1) work under a written contract that specifies how much and when they will be paid:
(2) do not replace employees who performed the same kind of work at the same volume for the hiring entity;
(3) do not primarily perform work at the hiring entity’s location, even as a matter of choice; and
(4) are not restricted from working for other hiring entities. The same conditions apply to freelance writers and translators, except the written contract also must specify the intellectual property rights in the worker’s output.
california law musician exception
AB 2257 specifies that the ABC test does not apply to a range of musical professionals. Recording artists, musicians, and vocalists working on sound recordings who receive no royalties from the sales of the recordings, however, must be paid at least the minimum and overtime pay for hours worked during the engagement as if they were employees.
california and borello test
In 1946, the California Supreme Court adopted a flexible independent contractor test for unemployment insurance tax assessments that the state high court later applied in its1989 Borello ruling in the context of workers’ compensation.
All of the Borello factors need not favor independent contractor status. Instead, the court focuses primarily on the hiring entity’s right to control the means of accomplishing the work and then weighs whether:
a) the worker is engaged in a distinct business;
b) in the locale where the work is performed, the work is usually done by a specialist without supervision
c) the work is highly skilled
d) the worker provides the tools and works offsite
e) the work is intermittent or continuous
f) the worker is paid by the hour or by the project
g) the work is part of the hiring entity’s regular business;
h) the parties believe they are engaged in an independent contractor relationship
2018 California Supreme Court adopted a strict ABC independent contractor test, whose factors resemble three of the Borello factors
A worker may not be classified as an independent contractor unless the hiring entity proves the worker:
(A) performed the work relatively free of the hiring entity’s control and direction; and
(B) performed work “outside the usual course of the hiring entity’s business”; and
(C) was “customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”
the lesson regarding ICs
Companies assume at their peril their classification of workers as independent contractors is legally safe if the ABC test does not apply for whatever reason.
