Worker classification series, part 2: understanding worker classification tests
May 21, 2019
Last week, we tackled the basics on what worker classification is, and why it matters so much to so many people. We also talked a little bit about the shift in the workforce and and how it’s impacting policy. For this installment on worker classification, we are focusing on the various tests used to determine worker status.
How to determine worker status
Different governing bodies use different tests to determine if a worker is an employee or an independent contractor.
At the federal level, there are three groups you should be concerned with: the IRS, the Department of Labor (DOL) and the National Labor Relations Board (NLRB).
At the state level, it’s similar- you’ll have your state tax authority, the state labor authority and potentially other groups that are interested in your worker classification.
There are many tests that can be applied to worker classification- and in some states, they apply multiple tests. When this happens, often different state agencies are applying different tests. For example, the labor authority could apply one test for a worker’s comp ruling and another department could apply a different test for unemployment insurance.
Although each test is different, the one factor that is examined across all of the tests is the employer’s control in the relationship.
The most common tests include:
- ABC test
- Common law test
- Right to control test
The ABC test is generally considered the most strict test and the burden of proof to show that a worker is truly independent is substantially higher.
In the ABC test, they judge the classification in three parts. First, is the worker free from the employer’s control or direction in performing the work? Second, does the work takes place outside the usual course of the business of the company and off the site of the business? Finally, customarily, is the worker is engaged in an independent trade, occupation, profession, or business?
Common law test:
Used by both the IRS and the NLRB, the common law test generally looks at three areas. There are many factors (up to 20) that may be considered as part of this test, but this groups it into major areas.
- Behavioral:Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial:Are the business aspects of the worker’s job controlled by the payer? (This may include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship:Are there written contracts or employee-type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Right to control test:
The right to control test is fully focused on the employer’s control over the worker. This test questions the control over how the work is done, compliance with instructions provided, training, the right to subcontract, when and where the work is done and performance reporting.
Breakdown of what tests are used where
The table below shows each state’s classification test, as well as the IRS, the DOL and the NLRB. It also provides quick links to policies if they are available. The data in this table is based on what was current as of April 2019. Please note that several policies are in flux and are subject to change.
Some interesting things came up in the process of gathering all the data:
- Some states see worker classification as being industry-specific. There is a lot of emphasis on the construction industry in several states.
- Some states view independent contractor status in relationship to whether the independent worker is considered an actual registered business
- In most cases, it appears that the worker is assumed an employee in any disputes unless the employer can prove otherwise.
|Governing Body||Test applied||Things to watch|
|DoL (under Fair Labor Standards Act)||Economic realities||The DOL just issued an opinion letter to an anonymous company suggesting gig-workers using platforms to find work are in-fact, independent contractors.|
|NLRB||Common law||The NLRB is the body responsible for overseeing worker’s rights to unionize. It’s currently a standard that independent contractors do not have the right to unionize.|
|Alaska||Nature of Work; ABC|
|Arkansas||Nature of Work, ABC|
|California||Right to Control||Assembly Bill 5 vs. Senate Bill 238, both which address the California Supreme Court Ruling in the Dynamex case and attempt to define the outcome with a law. While previous cases had been settled as Right to Control, Dynamex followed the ABC test. A recent Ninth Circuit court ruling declares that the ABC test should be used going forward and applied retroactively, however the CA government website still shows as Right to Control.|
|Colorado||Right to Control, Nature of Work|
|District of Columbia||ABC|
|Georgia||Modified ABC, Right to Control|
|Idaho||Right to Control|
|Indiana||Modified ABC, Common Law|
|Iowa||Common law; Right to Control|
|Kansas||Right to Control|
|Kentucky||Right to Control|
|Maine||Right to Control|
|Mississippi||Six factor test|
|Montana||Right to Control, Nature of Work|
|Nevada||Right to Control|
|New Hampshire||Right to Control|
|New Mexico||Common law|
|New York||Right to Control|
|North Carolina||Economic realities|
|North Dakota||Common law||Heavily focused on classification based on industry.|
|Oklahoma||Common law||Law is heavily focused on construction industry.|
|Oregon||Economic realities||Oregon is potentially adding additional factors to their test, specifically: that a person does not do the same type of work that the business’s employees already do.|
|Pennsylvania||Modified ABC||While Pennsylvania doesn’t call their test ABC, it has 2 out of the 3 factors called out in the Construction Workplace Misclassification Act 72.|
|Rhode Island||Right to Control|
|South Carolina||Right to Control|
|South Dakota||Modified ABC|
|Tennessee||In flux||Tennessee just approved HB539, which switches them to the 20-factor IRS test (common law), but formerly used the Right to Control test.|
|Texas||Common law||The Texas Workforce Commission adopted a rule allowing gig-economy workers (or workers hired through digital platforms) to be classified as independent contractors.|
|Utah||Right to Control|
|Virginia||Right to Control|
|Washington||Other (6 factors)|
|West Virginia||Right to Control||The West Virginia HB2786 was passed in 2019 and actually calls out the purpose of the Uniform Worker Classification Act was to be more clear and consistent across all state agencies what the burden of proof was to be considered an independent contractor.|
|Wisconsin||Other||Wisconsin appears to have several different policies based on the inquiry.|
|Wyoming||Common law; Right to Control||to do nextWhat|
As an independent worker, it’s important to understand your rights when it comes to your worker status. Maybe based on reading the issues at hand, you’ll find it important to look at some of your current client or employment contracts to make sure that you are exercising those rights to the fullest.
Next week, we’re examining interesting developments in the worker classification space, such as Instagram influential content creators trying to unionize, Google’s policy change for independent contractors, and changes in federal policies around benefits available to independent workers.