what does "outside the usual course of the hiring entity's business" "mean"

What is a hiring entity?

What is the ABC test for workers?

What is the difference between an employee and an independent contractor?

What is the new law in California regarding independent contractors?

What is California's ABC test?

What is dynamex ABC test?

What are the benefits of hiring a contractor vs an employee?

Why do employers frequently try to pass off employees as independent contractors?

Is an independent contractor self-employed?

Do you need a business license to be an independent contractor in California?

How do independent contractors avoid paying taxes?

What is the AB 5 law?

What is independent contractor versus employee?

In September of 2019, Governor Newsom signed Assembly Bill (AB) 5 into law. The new law addresses the “employment status” of workers when the hiring entity claims the worker is an independent contractor and not an employee. 1.

What happens if an employer misclassifies an independent contractor?

If EDD finds that workers are misclassified as independent contractor (s) when they should be classified as employee (s), employers face significant risks related to failing to comply with their obligations under the Unemployment Insurance Code. These risks include under-paying their taxes and having to pay their employees’ share of payroll taxes, both of which may result in incurring penalties and interest.

What is the labor code for real estate?

For two specific industries, special rules under Labor Code section 2778 (b) require examination under the Business and Professions Code: Certain real estate licensees, for whom the test of employee or independent contractor status is governed by section 10032 (b) of the Business and Professions Code.

What are the penalties for misclassifying an employee as an independent contractor?

Under Labor Code section 226.8, which prohibits the willful misclassification of individuals as independent contractors, there are civil penalties of between $5,000 and $25,000 per violation. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor. 12.

Can a hiring entity determine a worker's status?

The hiring entity cannot unilaterally determine a worker’s status simply by assigning the worker the label “independent contractor” or by requiring the worker, as a condition of hiring, to enter into a contract that designates the worker an independent contractor. (Dynamex, 4 Cal.5th at 962.)

Is an employee considered an independent contractor?

Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

Can you be misclassified as an independent contractor?

Yes. In addition to penalties that may be assessed for wage violations associated with a worker being misclassified as an independent contractor, there are civil penalties for willful misclassification. Under Labor Code section 226.8, which prohibits the willful misclassification of individuals as independent contractors, there are civil penalties of between $5,000 and $25,000 per violation. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor.

The new standard presumes all workers are employees unless the hirer can establish three rigid factors that qualify a worker as an independent contractor

On April 30, 2018, the California Supreme Court issued a ruling that makes it significantly harder for companies to classify workers as independent contractors for purposes of claims based on California’s 17 Wage Orders.

What happens next?

The April 30 ruling is likely to generate a flurry of cases in California courts as parties litigate which claims are and are not going to be subject to the ABC test.

What does this mean for employers?

The Supreme Court’s new ABC test is going to have a considerable impact on workers and hirers. Once a worker is classified as an employee, the hirer will be responsible for paying certain federal and state taxes and complying with state and federal labor and employment laws.

Emerson Beishline

Emerson is Compliance Counsel at Ceridian with many years of experience in U.S. and international legal research and writing. In his current role, Emerson tracks U.S.

What is the third prong in employment?

Under the third prong, businesses will be required to prove that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work they are performing for the hiring entity. The court again referred to such workers as plumbers and electricians retained for limited functions or projects as those traditionally fitting into this prong. On the other hand, workers engaged to carry out a skilled function that is a normal part of a particular integrated part of a business—as opposed to someone in a separate trade, occupation, or business retained for doing a separate service outside the employment context—may nonetheless be prone to be viewed as employees no matter how skilled the work involved.

What should businesses think about when evaluating potential liability?

In the end, businesses should think not only about their own potential liability, but the potential liability of affiliated companies benefitting jointly from the services performed. Given that the risk of misclassification presumably could be greater in such situations, vendors and business affiliates similarly should be concerned about these risks. They could impact contractual relationships including the attempt, noted by Dynamex, to spread the risks by various means such as indemnification agreements.

What does "employ" mean in wage orders?

The wage orders define employ as “ to engage, suffer, or permit to work .” This language originated in 1916, with the passage of state laws designed to prevent the exploitation of child laborers. The idea was that if you allow children to work for you, you are going to follow certain legal requirements. To prevent funny business, an intentionally broad definition of “employ” was used.

What happens if a business fails to meet all three prongs of the wage order test?

If the business fails to meet all three prongs of this test, the worker is an employee for purposes of the wage orders. Case closed. Done deal. The other factors don’t even matter.

Why do you hire an independent contractor?

You hire independent contractors to help you with specialized or contract work. But if you find yourself engaging in what may be considered an employer-employee relationship with your independent contractor hires, you may be contacted by the EDD and the IRS for a potential mislabeling claim. Mislabeling is one of the reasons ...

What is the common mistake you make when setting a schedule for contractors?

Setting a Schedule for Contractors. Another common mistake you might make is to direct when a contractor must work. If you suggest or direct when a contractor takes breaks, or even what time of day they need to start work, it might give the impression that they are an employee.

What are the issues with working with independent contractors?

Here are a few behavior scenarios that could lead to potential issues when working with independent contractors. 1. Making Regular, Long-Term Relationships.

Is a contractor an employee?

If contractors are working in your offices or place of business, this may cause some labeling issues when determining if they are a contractor or an employee. If a contractor is working out of an office alongside full-time or part-time employees, they might be confused or misclassified as an employee, especially if they are working similar hours ...

How to strengthen your workforce model for AB5 and beyond

In early January, California truck drivers and transportation companies breathed a collective sigh of relief before going about their important business.

About Openforce

Openforce is the leader in technology-driven services that reduce operating costs and mitigate risk for companies using independent contractors. Our cloud-based applications help companies and contractors alike achieve more sustainable, profitable growth by removing financial, operational, and compliance barriers to getting business done.