ABC Test for Independent Contractors
Learn how to run an ABC test to ensure that any contractors that your company hires won't be considered to be employees in the eyes of the government.
Updated on October 3rd, 2023
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The ABC test is a simple set of criteria that helps employers to determine whether a worker is considered an employee or an independent contractor in the eyes of the government. Many states require that an independent contractor meets all of the criteria of the ABC test, otherwise, they will be viewed as an employee.
How the ABC Test Works:
The criteria for the ABC test varies by state. Generally, the three most important measures are the following:
- The worker has the liberty to complete their work without the employer's direction or oversight.
- The work does not take place at the company's location and may or may not happen outside of the company's normal operating hours.
- The worker has their own occupation or trade and is free to offer their services to other parties.
Why Does the ABC Test Matter?
Improper designation of a worker can lead to serious consequences on both a federal and a state tax level. If a worker shows up to your business location every day and works under your control, the government does not want you to avoid contributing to their unemployment insurance and offering them benefits by paying them as an independent contractor.
Knowing what your state requires in order to classify someone as an independent contractor can prevent your business from running into labor issues.
Even if you do use independent contractors, it is good to review the laws in your state to ensure that the manner and method of their work could not be construed as employment.
States That Use Some Form of an ABC Test:
FAQs:
What constitutes an independent contractor in California?
In the state of California, the most significant test for determining if someone is an independent employer or not is whether or not another party has control over how the worker performs their work. Someone who is engaged in their own trade and has control over the means and methods of their own work is, in most cases, considered to be an independent contractor.
What is the IRS 20 Factor Test?
The 20 Factor Test is a set of criteria from the IRS that can help employers to determine whether a worker is an employee or an independent contractor. Employers can request a ruling from the IRS using this test if they are unsure of a worker's status.
Does work for hire apply to independent contractors?
Work for hire is the idea that any work produced by an employee automatically falls under the copyright of the employer. Work for hire does not generally apply to independent contractors, but there are some exceptions:
- If the work has been specially ordered.
- If both parties sign a written agreement specifying a "work for hire" arrangement.
- If the work is (1) a contribution to a collective project, (2) part of a media project (a motion picture, audio track, etc.), (3) a translation, (4) a supplementary work, (5) a compilation, (6) an instructional piece, (7) a test, (8) an answer for a test, or (9) an atlas.