The question of whether someone is an employee or an independent contractor is important when determining eligibility for California’s unemployment insurance. Classifying employees correctly is also relevant to payroll as well as taxes. Businesses want to be sure that they have the correct classification for employees who work for them. The ABC test is of help for this.
Workers are employees unless there is proof that shows otherwise. The ABC test can help distinguish the difference between employees and independent contractors. Meeting three conditions, they are not an employee; that is the reason the test has the name ABC test.
The worker is not an employee if they meet all three of the following:
• The worker is free from the control and direction of the hiring company when they perform their work.
• The worker performs work that is outside the usual course of the hiring company’s business
• The worker is usually engaged in an independently established occupation, trade or business of the kind they are performing for the business
To satisfy the first point, the company must establish that the worker is free of such control by the business. On the other hand, if the worker is under the usual control of the business, they would be an employee. The ABC test is an important consideration when following California employment law.
The Borello test
There is another test that may be in use to determine whether a worker is an employee. The Borello test applies to some specific industries and work relationships. It is a multi-factor test.
The ABC test helps to determine if a worker is an employee or an independent contractor. This will be in use as a guide to unemployment insurance as well as payroll tax and other matters.