What does AB 5 means for independent contractors and workers compensation?
In regards to distinguishing independent contractors, California Assembly Bill 5 (AB 5) will go into effect on July 1, 2020. AB 5 refers to the classification of independent contractors and affects wages, workers compensation and other benefits. This change can also affect your workers compensation policy in the case that you need to make any adjustments or additions to your current coverage.
California Assembly Bill 5
AB 5 assumes that workers are all classified as employees and not independent contractors unless the employer can prove the worker meets all 3 of the following conditions, also known as the “ABC Test.”
- (A) 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.
- (B) The person performs work that is outside the usual course of the hiring entity’s business.
- (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The ABC Test will be the new standard used to classify independent contractors in place of the previously used “Borello Test” (see section 5).
AB 5 Exemptions
It is important to know that the state has specified certain industries that do not need to use the ABC Test in regards to classifying independent contractors. If your industry qualifies as an exception, the previous Borello Test will apply in your case to determine whether your employees are independent contractors or not. For more information on AB 5 and industries that are exceptions to AB 5, please click here.
If you intend to classify a worker as an independent contractor, we would advise that you seek advice from a trusted legal advisor. If you need to notify us of any adjustments to your existing workers compensation policy or wish to obtain workers compensation coverage, please contact us and we would be happy to assist you.