California AB-5 (Independent Contractor Determination) Frequently Asked Questions

What is California AB-5?

  • California Assembly Bill 5 (AB-5) updates the way in which companies determine whether a worker is considered an employee or independent contractor in California.
  • AB-5 requires the new, more stringent, “ABC test” to determine if workers in California are independent contractors or employees.

 
What is the ABC test?

  • Effective January 1, 2020, a worker is considered to be an employee unless the hiring entity can prove ALL three of the following conditions:
  • The person 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.
  • The person performs work that is outside the usual course of the hiring entity’s business.
  • The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

 
What are the exceptions or “carve-outs” to the ABC test?

  • Recognized or specifically named professions, professional services, and bona fide business to business contractors are listed as the current exemptions.
  • Only a few dozen industries are carved out of the AB-5 legislation.
  • Carved out professions are not necessarily exempt from all independent contractor requirements. They are simply exempt from the ABC test, which means that contractors must still be qualified under the previous multi-factor Borello test.

 
PBO’s HR Consulting Team can help you evaluate your independent contractors, determine if they meet the new AB-5 standards, and advise on how to proceed in either situation.

For more information on how PBO can assist with this or other HR services, contact Laura Nieman, PHR at Laura@pboadvisory.com or 858.935.4844

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