Assessing Independent Contractors
State law, as of January 1, 2020, affects how USC hires Independent Contractors. The bill created a new three-pronged “ABC” test to classify whether workers should be independent contractors or employees, and it establishes a new standard for proving workers are independent contractors.
Regardless of the employee category type ultimately selected, individuals are not permitted to start work at USC until the hiring review and engagement process is complete. The university cannot retroactively place someone in a staff, faculty, or independent contractor status. Managers will be held responsible should they allow an individual start work at USC without the proper approvals beforehand. Where required, disciplinary action will be taken.
What does AB-5 mean for USC?
Unless an exemption provided under state law applies, Independent Contractors must meet all three of these requirements (the “ABC” test):
A. Worker completes work independently and outside of direct supervision/control of employer
- USC must establish the worker is free of such control. A worker who is subject to the type and degree of control USC typically exercises over employees (either as a contractual right or in actual practice) is considered an employee. USC could be exercising this control even without controlling the precise manner or details of work.
B. Work being conducted is outside normal business activities of the organization/company
- USC must establish the worker performs work that is outside the usual course of departmental business. Therefore, contracted workers who provide services in a role comparable to an existing employee will likely be viewed as employees.
- Example where services are not part of the hiring entity’s usual course of business: A retail store hires an outside plumber to repair a leak in one of its bathrooms.
- Example where services ARE part of the hiring entity’s usual course of business: A bakery hires cake decorators to work on a regular basis on its custom-designed cakes.
C. Worker is customarily engaged in work of the same nature as the work being conducted
- USC must prove the worker is customarily and currently engaged in an independently-established trade, occupation, or business. USC cannot unilaterally determine worker status simply by assigning the worker the label “independent contractor” or by requiring that the worker, as a hiring condition, enter into a contract that designates the worker as an independent contractor.
- To qualify as an independent contractor, the worker’s independent business operation must be already established at the time the work is performed. An individual who has decided to go into business generally has established and promoted that business. Examples of this include:
- Incorporation, licensure, advertisements
- Routine offerings to provide the business’ services to the public or a number of potential customers
- If an individual’s work relies on a single hiring entity, that individual most likely would be considered an employee of that hiring entity, not an independent contractor.
- Unless an exemption provided under state law applies, other USC employees cannot be providing the same services
- All Independent Contractor approvals are now routed through the AB-5 Coordinator (new role, see “Resources and help” below)
- A new end-to-end process is involved (see below)
Fundamental questions to appropriately classify Independent Contractors vs employees
- What type of working is being conducted?
- Where is work being conducted?
- How much oversight does USC exercise in relation to the work?
- Does the provider have other clients?
- How does the provider market their services?
The approval process for an independent contractor takes place in the Lincware system, and should be started at least 14 days before the work is to begin. Start the process now.