The ABC test is used by employers to determine if a worker is classified as an employee or an independent contractor by federal and state governments. As more and more workers are moving toward the gig economy, the ABC test is becoming more and more utilized by employers.
The test itself is taken by an employer to see if workers can be classified as an independent contractor. Unless this test is taken and passed all workers are seen as employees and entitled to benefits under state workers’ compensation laws. Failure to complete the test and/or mischaracterizing workers as independent contractors can result in serious consequences.
The designation between employee and independent contractor has a significant impact on workers’ compensation benefits. Under New Jersey law businesses with even a single employee need to carry workers’ compensation benefits. The designation may also impact wage and hour laws and unemployment benefits.
How the ABC Test Works
The ABC test is used to demonstrate that workers should not be considered an employee. All workers are considered to be employees in the eyes of the IRS and state governments unless these criteria are met. Employers must satisfy all three components of the test to classify workers as independent contractors.
- Standard A- The worker performs their work outside of the direct control of the employer. For example, the worker has no set schedule for work, doesn’t directly answer to a supervisor, and is not eligible for bonuses and compensated based on their performance.
- Standard B – The work the individual performs is not part of the core offerings of the employer’s business or the work performed is not conducted at the employer’s location. For example, a worker who is completely remote or a person hired to perform a duty not advertised as a business service.
- Standard C – The worker is typically an independent contractor for other clients. If the worker normally performs the same duties for other clients they could be considered an independent contractor.
Performing work outside an employer’s core offerings is a relatively new addition to the law and has serious implications among New Jersey businesses.
The main objective of these laws is to protect workers’ rights and make a clear distinction between employees and independent contractors. Employers who hire workers and misclassify them as independent contractors may be open to liability if that individual is hurt on the job.
If you’ve been injured at work, contact The Reinartz Law Firm to learn how we can help.