Finding the right person for the job can either be a dream come true or a downright nightmare for your recruitment team as there are many factors, aside from job qualifications, that play into filling a position. Through the years, it has become clear that correctly classifying a worker as an employee or independent contractor is challenging. A recent ruling may provide some assistance:
Hiring Under Compliance: The ABC Test
As a result of the ruling for Dynamex Operations West, Inc. v. Superior Court in 2018, the California Supreme Court ruled that each company must establish three factors to determine whether a worker is an employee or independent contractor. These factors are known as the “ABC test.” By following these three factors, recruiters should be able to delineate between the two different employee designations The three factors are outlined as follows:
A.) Does the company control what the worker does and how they do the job?
B.) The worker performs work outside the usual course of the company’s business.
C.) The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
These three questions can be answered with a simple “yes” or “no,” with the results either defining whether the prospect can be classified as an employee or a contractor. This is an important step in the recruitment process because hiring under compliance can mean the difference of hiring correctly or having a potential case in the future.
Once you have classified a worker, there are several other things that would need to be considered. Here some differences between the two designations:
Employee: The company withholds income tax, social security and medicare wages and full-time employees are eligible for benefits. Also, employees report all money paid to them via a W-2 and they are covered under federal and state labor laws.
Contractors: The company does not withhold taxes when paying a contractor and no insurance benefits are provided. Additionally, contractors must report earnings of $600 or more via a 1099 form.
How can you make sure that your company is compliant with employees and independent contractors?
Follow the guidelines under the ABC test in order to make sure that the worker that you are hiring correctly classified. While recruiting under compliance can be a painstaking process, it is necessary to ensure that your company is following the rules.
Another way to ensure that your company is recruiting within the guidelines of the law is to obtain assistance from a firm like LTD Global. We can provide assistance in navigating these various compliance requirements or by simply hiring employees on your behalf.
Need to fill a position? Need some assistance in determining correct worker classification? Email us at info@LTDglobal.com