by Jennifer Grady, Esq.
Assembly Bill No. 1561, which went into effect January 1, 2022, contains key updates for certain professional services and their classification as independent contractors according to the ABC test. Read on to see which professions are most directly impacted by the latest updates.
What is the ABC test?
In September 2019, the AB 5 law was passed in California, establishing that most wage earning workers are employees, not independent contractors. This provided labor protections such as minimum wage, sick leave, and unemployment and workers' compensation benefits for workers classified as employees. It also enacted the ABC test for employers to determine and prove whether workers were independent contractors, not employees. According to the Labor and Workforce Development Agency, employers must prove that a worker meets all three of the following requirements to be considered an independent contractor:
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;
The worker performs work that is outside the usual course of the hiring entity’s business; and
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Who is now exempt in 2022?
1) Licensed Manicurists - Exemptions for licensed manicurists from the ABC test according to Labor Code Section 2778 have been extended to January 1, 2025.
2) Construction Industry Contractors/Subcontractors - Exemptions from the ABC test for contractors and subcontractors in the construction industry based on Labor Code Section 2781 have been extended to work performed prior to January 1, 2025 if contractors meet certain criteria, including proof that the subcontractor is licensed by the Contractors State License Board, and the work is within the scope of that license.
3) Data Aggregators and Research Subjects - The new bill clarifies the definition of a research subject to "any person who willingly engages with a data aggregator in order to provide individualized feedback," and provides an exemption to the ABC test application for the relationship between a data aggregator and research subject. If the following conditions are met by the scope of work between the data aggregator and the research subject, the Borello test must be applied in place of the ABC test:
The research subject is free from control and direction with respect to the substance and content of the feedback;
The nature of the feedback requested requires the research subject to exercise independent judgment and discretion; and
The research subject has the ability to reject feedback requests, without being penalized in any form by the data aggregator.
The Borello test is a multi-factor test that helps determine whether employers holds necessary control over a worker to establish an employee versus independent contractor relationship.
4) Claims Administration and Third Party Administrators in the Insurance Industry - Labor Code Section 2783 expanded the exemptions for workers in the Insurance industry to include individuals who provide " underwriting inspections, premium audits, risk management, claims adjusting, third-party administration, [or] loss control work for the insurance and financial service industries."
5) Housing Salesperson - This bill clarifies that the statutorily imposed duties for housing salespersons as required by the Health and Safety Code are not to be considered or factored into the Borello test.
6) Newspaper Publishers and Distributors - The ABC test exemption for newspaper publishers and distributors has been extended until January 1, 2025 under the condition that publishers and distributors submit certain workforce information to the Labor and Workforce Development Agency on a yearly basis. The required information includes:
(i) The number of carriers for which the publisher or distributor paid payroll taxes in the previous year and the number of carriers for which the publisher or distributor did not pay payroll taxes in the previous year.
(ii) The average wage rate paid to carriers classified as independent contractors and as employees.
(iii) The number of carrier wage claims filed, if any, with the Labor Commissioner or in a court of law.
If you need more information on how these exemptions may apply to your business, we encourage you to contact our office at info@gradyfirm.com, or call us at (949) 798-6298.
To learn more about ensuring your business is compliant with state and local laws, schedule a complimentary 15-minute consultation with The Grady Firm’s attorneys; call +1 (949) 798-6298; or fill out a Contact Request Form.
As outside counsel for growing and international companies with a presence in California, The Grady Firm attorneys provide the following services;
Assistance with interpreting emergency COVID-19 legislation as it affects your business;
Counsel employers on staff changes and draft Notices of Reduced Hours, Furloughs, or Layoffs;
Draft Severance Agreements;
Act as I-9 agent and I-9 audit preparation or defense;
Employee v. independent contractor classification analysis;
Assistance with converting independent contractors to employees;
On-site, classroom-style Sexual Harassment training for employees and supervisors;
“Experiential” supervisor training in which managerial employees practice processing a harassment complaint and commencing an investigation in pairs with other trainees.
Draft and review Employee Handbooks, arbitration agreements, and Anti-Harassment policies;
Employee personnel file audits;
Litigation/labor claim defense.
The firm’s attorneys are licensed to practice employment law in California.
This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.
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