How To Use The ABC Test To Classify Independent Contractors

Cassidy Jakovickas

May 15, 2024

As a business owner, you are always watching the bottom line, constantly looking for ways to become more streamlined or efficient. One of the first things you may have done to streamline your business is hire independent contractors to handle work that was previously handled by in-house employees. The California Supreme Court provided a new metric for determining whether an individual is to be considered a contractor or employee when they ruled in Dynamex Operations West, Inc. v. Superior Court of Los Angeles in 2018.

Background Of The ABC Test For Independent Contractors

In 2004, Dynamex, a national delivery and courier service provider, began to classify its drivers as independent contractors, rather than employees as it had previously done. The new classification meant that Dynamex drivers had to pay for their vehicles, transportation expenses, and uniforms. Two drivers brought a class-action lawsuit, stating that they were employees, not contractors. In the Dynamex case, the Supreme Court ruled that a worker must pass a three-part test – referred to as the A-B-C Test – to retain their status as a contractor, rather than an employee.

The ABC Test For Classifying Independent Contractors

  1. A) Absence Of Control: The individual must be free from the control of the hiring company regarding the performance of the assigned task or job.
  2. B) Business Nature: The worker must also perform work outside of that hiring entity’s assigned job or business
  3. C) Customary Occupation: They must also have an established business of the same occupation as the work performed for the hiring company

Note For Franchisors & Similar Businesses

Dynamex’s lack of a franchise relationship within its company excluded any discussion on how the Court’s ruling would apply in a franchise situation or other less-than-clear hiring relationships. As you explore the effects of the Dynamex ruling on your franchise, it is worth noting that a California appellate court ruled in Curry v. Equilon Enterprises that the ABC test does not apply to joint employment situations.

Assembly Bill 5 Legally Codifies The Ruling In The Dynamex Case

The Dynamex case ruling prompted action from the California State Legislature, specifically Assemblywoman Lorena Gonzalez. On December 3, 2018, Gonzalez introduced Assembly Bill 5 (“AB5”) was intended to codify the Dynamex court decision. After several amendments and revisions, Assembly Bill 5 was signed into law on September 18, 2019.

Does your state follow the ABC Test or the Common Law Test?

StateWorker Classification Test
AlabamaCommon law test
AlaskaABC test
ArizonaCommon law test
ArkansasABC test
CaliforniaABC test
ColoradoA and C of ABC test
ConnecticutABC test
DelawareABC test
District of ColumbiaCommon law test
FloridaCommon law test
GeorgiaABC test
HawaiiABC test
IdahoA and C of ABC test
IllinoisABC test
IndianaABC test
IowaCommon law test
KansasABC test
KentuckyCommon law test
LouisianaABC test
MaineABC test
MarylandABC test
MassachusettsABC test
MichiganCommon law test
MinnesotaCommon law test
MississippiCommon law test
MissouriCommon law test
MontanaA and C of ABC test
NebraskaABC test
NevadaABC test
New HampshireABC test
New JerseyABC test
New MexicoABC test
New YorkCommon law test
North CarolinaCommon law test
North DakotaCommon law test
OhioABC test
OklahomaA and B or A and C of ABC test
OregonABC test
PennsylvaniaA and C of ABC test
Puerto RicoABC test
Rhode IslandABC test
South CarolinaCommon law test
South DakotaCommon law test
TennesseeABC test
TexasCommon law test
UtahABC test
VermontABC test
VirginiaA and B or A and C of ABC test
WashingtonABC test
West VirginiaABC test
WisconsinA and C of ABC test
WyomingA and C of ABC test

Applying the ABC Test To Your Company

As you consider streamlining your business by hiring contractors, take note of worker classification guidelines and save yourself the costs and expenses associated with misclassifying a worker.

If you need help with navigating your particular situation, contact MBS Accountancy and navigate your taxes and finances with ease!