The court ruled in April 2018 that the following three conditions, named the ABC rules, must be met to qualify the worker as an independent contractor. The worker must:
- be free from the control and direction of the employer in connection with the performance of the work; both under the contract for the performance of such work and in fact
- perform work that is outside the usual course of the hiring entity’s business
- be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity
Originally, the attention of the ruling was on the trucking industry. That said, many industries will be affected by this new ruling. Unless your company, or the independent contractor has taken steps to mitigate these new labor law requirements, it is possible you’re not compliant to the new guidelines and could eventually face a Department of Labor audit. The simple solution is to hire and manage independent contractors as employees.
Please note, Payroll Vault is not a legal authority on labor law and our emphasis is on payroll and providing input on labor compliance as part of our service.
Other factors that are affected and have associated costs are the payment of employer taxes and sick leave. Equally, there are also benefits to hiring employees versus independent contractors.
Payroll Vault is a boutique style local payroll services provider that designs payroll for our local small business community. Contact your local Payroll Vault office to learn more about how we can consult with and guide you through the associated costs with hiring employees.