California recently signed into law the Dynamex Decision (AB5 - subsequently amended in 9/2020 as AB2257), codifying how workers should be classified as employees. Essentially the law now stipulates that individuals (including sole proprietors) who provide services in California are presumed to be employees unless proven to be an independent contractor. The goal of this law is to expand coverage of unemployment insurance, workers comp, overtime pay, expense reimbursements and wage and hour laws to workers. The hiring entity (UC) has the burden of proving how a worker is be considered an independent contractor.
There are two different tests the UC must apply when considering how to classify these workers: 1) the ABC test, and 2) the Borello test. The Borello test is only used with certain types of services (outlined below), whereas the ABC test is used with every other type of service.
1. ABC (this is statutory law):
a. that 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;
b. that the worker performs work that is outside the usual course of the hiring entity’s business; and
c. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
a. This is essentially the IRS test. The questions aim to determine control of the process. In other words, if the UC is generally in control of the work product and outcome, then the worker is an employee.
b. There are many categories codified in AB2257 that are exempt from the ABC test; Employment Services can help identify which might apply.
How can my department comply?
- Submit a request through HR's ServiceNow system: https://ucsb.service-now.com/contractingout
- Be sure to add the scope of work as an attachment, or in the ticket description.
- If HR lets you know the service can be hired through Gateway as an Independent Contractor, please upload a copy of that email/ticket to your subsequent Gateway Requisition.
View the law text: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB2257