California Assembly Bill 5 – When should you apply ABC or Borello Testing? | Colony West
California Assembly Bill 5 - Borello Test December 14, 2019

California Assembly Bill 5 – When should you apply ABC or Borello Testing?

Compliance/By Colony West/0 comments

With January 1, 2020 right around the corner, California’s Assembly Bill 5 (AB5) looms over businesses across the state. In September of this year, we posted a blog titled, “Assembly Bill 5 and How It Impacts Tech Companies Thriving off the Gig Economy” where we discussed how companies will be limited when classifying workers as independent contractors. For those of you who aren’t aware, AB5 changes the rules that employers use for determining whether their workers are classified as employees or independent contractors (ICs), therefore determining who receives protections and benefits that are offered. As organizations and workers set their sights on compliance under AB5, a common requirement that was in place before the new law is being overlooked – passing the Borello Test.

 

What is the Borello Test?

While the new Assembly Bill 5 requires that a strict ABC test is required to determine what California workers are employees and which are ICs, workers who are in the exempt category are required to pass the Borello Test. All exempt workers must pass this test if they want to be classified as an IC. Also known as the “right to control” test, the Borello Tests asks the question of whether the person whom service is rendered, has the right to control the manner and means of accomplishing the desired result. Secondarily, the Borello Tests asks the following eleven questions for determining the IC classification:

 

  • Is the worker engaged in an occupation or business that is separate from the employer?
  • Is the job part of the employer’s regular business?
  • Does the employer provide the proper equipment, tools and instrumentalities for the work required?
  • What is the worker’s financial investment in the equipment needed to perform the job?
  • What skill are required to perform the job?
  • Is the work being performed under the supervision of the employer or without?
  • Is there an opportunity for profit or loss depending on the worker’s managerial skill?
  • What is the length of time that the work is being performed?
  • Is the method of payment by time or by job?
  • Is there a creation of an employer-employee relationship?
  • Is there a right to discharge at will, without cause?

 

What makes a worker exempt from the ABC Test?

As mentioned before, a worker who meets the exemptions requirements is not automatically considered an independent contractor. If that worker is exempt, the ABC test does not apply but Borello requirements kick in. Here are the seven categories of an exempt worker:

 

  1. Specific Occupations:Subject to certain qualifiers, this exemption typically includes insurance agents, lawyers, private investigators, accountant, direct sales people, commercial fisherman and more.

 

  1. Certain Contracts for Professional Services:This exemption includes certain contractual services related to marketing, HR, graphic design, photographers, barbers, cosmetologists, etc. and requires that the following six conditions are met:
    1. Individual maintains a business location
    2. If more than six months work is performed, the individual must have a business license
    3. Individual can negotiate their own rates
    4. Individual can set their own hours
    5. Individual is engaged in an independently established business of same work
    6. Individual exercises discretion and independent judgement of the services being performed

 

  1. Real Estate Licensees and Repossession Agencies: Exempt are such workers under the California Business and Professions Code.

 

  1. Bona Fide Business-to-Business Contracting Relationships:Exemption occurs when a business service provider contracts services to another business and demonstrates that 12 conditions are satisfied:
    1. Business service provider is free from control of contracting business
    2. Provides services directly to contracting business
    3. Contract is in writing
    4. Work is within jurisdiction that requires a business license or tax registration
    5. Provider has a business location separate from the contractor
    6. Provider is engaged in an independently established business of same work
    7. Provider has other contracts with other businesses to provide the same services
    8. Providers advertises and is available to offer the same services to the public
    9. Provider has their own tools and equipment
    10. Provider can negotiate their own rates
    11. Provider can set its own hours and location
    12. Provider does not perform work that requires a license from the Contractors State License Board

 

  1. Contractors and Individuals Under Subcontract in Construction:This exemption includes seven conditions such as:
    1. Subcontract must be in writing
    2. Subcontractor is licensed by the Contractors State License Board
    3. Subcontractor is within jurisdiction that requires a business license or tax registration
    4. Subcontractor has a business location separate from the contractor
    5. Subcontractor has authority to hire and fire other workers
    6. Subcontractor assumes financial responsibility for errors in labor or services
    7. Subcontractor is engaged in an independently established business of same work

 

  1. Relationships between Referral Agencies and Service Providers:Applies when the following ten conditions are satisfied:
    1. Service provider is not controlled by referral agency
    2. Work for the client is performed in a location that requires the provider to have a business license or tax registration
    3. Work requires provider to have a state contractor’s license
    4. Provider delivers services under their own name and not the referral agency
    5. Provider owns own tools and supplies
    6. Provider is engaged in an independently established business of same work
    7. Provider has a clientele outside of restrictions from the referral agency
    8. Provider sets own hours
    9. Provider sets own rates
    10. Provider is not penalized for rejecting clients or contracts

 

  1. Certain Relationships related to Motor Club Services: Exemption applies to relationship between certain motor clubs and the individuals who perform services under contract for them.

 

What can you do?

As made clear in previous blogs and the above, there is a lot to digest in regard to AB5, the gig economy and the classifications regarding what makes a worker an employee or an independent contractor. As always, Colony West has a checklist and more in-depth content to help ensure your company has all the tools necessary to stay within compliance of the new law. If you’d like an audit or want to discuss further with an HR professional, our partnership with OutlookHR helps us connect you with an expert to help you navigate through AB5. Contact us today!