Many people believe that being an independent contractor is the same as being self-employed; however, this is not necessarily the case. In general, someone is self-employed if they are their own boss. They get to decide whom they work for and how much they charge.
Independent contractors never maintain an employer-employee relationship. This means they never have to worry about being fired or taking orders from somebody else. In contrast, an independent contractor sets up an employer-employee relationship with somebody else for only a short period of time. They need to meet someone else's standards or the relationship could be terminated. That is why it is critical to consider the differences between contractors and self-employed professionals.
In general, there are three factors that must be considered before someone is deemed an independent contractor. First, the type of work they do matters. It is important because it matters whether someone is under the supervision of someone else or if they are in total control of their own work. Second, the skill required to do that occupation also matters. Is this something they are able to do on their own, or is it something that they depend on another individual or company for? Finally, the equipment they used to do the job is also considered. Does the employee control his or her own equipment, or is the equipment controlled by somebody else? This is important for determining whether someone is an independent contractor.
The ABC test is the most common test used for determining whether someone is an independent contractor. If an employee meets all three of these conditions, they are considered to be an independent contractor.
Condition B is particularly challenging for many contractors to meet, and is often criticized as overly restrictive. For example, a self-employed freelance journalist hired by a magazine or website to write an article would be unable to meet Condition B because their line of work is the same as that of the hiring company: producing written content. The same would apply to many temporary workers, including a musician hired to fill in for an unavailable band member, a carpenter hired to help a construction firm build a house, or a baker hired to help a caterer with a particularly large event.
To alleviate for Condition B's unintentional heavy-handedness, many states pass additional laws, such as California's AB 2257, giving certain professions exemptions from Condition B (or the ABC test as a whole).
States that do not use the ABC test typically use the similar Common Law Rules as outlined by the US Internal Revenue Service (IRS). The answers to the common law questions help determine if a worker is considered an independent contractor or a full employee.
There are several states that commonly use the ABC test to decide whether someone is an independent contractor. These include Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Ohio, Oregon, Rhode Island, Tennessee, Utah, Vermont, Washington, and West Virginia. Anyone working as an independent contractor in these states must pass the ABC test if they want to be classified as such.
Any other states generally have requirements that are very similar, but there may be a few differences. For example, several states require the contractor to meet only conditions A and C of the ABC test, or utilize Common Law Rules instead.
Independent Contractor Law
|California||ABC Test||Proposition 22, which allows rideshare companies like Uber and Lyft to classify drivers as independent contractors, was approved by voters. Although they are not considered employees, the new law requires that specific labor and wage policies be put in place for app-based drivers, which you can view here. Meanwhile, the “Save Local Journalism Act” allows newspaper publishers to wait one more year until they are required to classify their newspaper carriers as independent contractors. The extension expires on January 1, 2022.|
|Colorado||A&C of ABC Test|
|District of Columbia||Common Law|
|Idaho||A&C of ABC Test|
|Iowa||Common Law||SB 2296 established a new rule making workers who operate certain vehicles are classified as independent contractors instead of employees effective July 1, 2021.|
|Louisiana||ABC Test||Louisiana added a definition of “employee” to their existing classification law. The new definition reads: “An ‘employee’ means an individual who performs services for an employer where there exists a right by the employer to control what work the employee does or how the employee performs his job or where the employer provides the tools and supplies to the employee for the performance of the job.”|
|Montana||A&C of ABC Test|
|New Hampshire||ABC Test|
|New Jersey||ABC Test|
|New Mexico||ABC Test|
|New York||Common Law|
|North Carolina||Common Law|
|North Dakota||Common Law|
|Oklahoma||A&B or A&C of ABC Test|
|Pennsylvania||A&C of ABC Test|
|Rhode Island||ABC Test|
|South Carolina||Common Law|
|South Dakota||Common Law|
|Virginia||A&B or A&C of ABC Test||HB 1407 makes it illegal to misclassify an employee as an independent contractor under the IRS common law test. The Virginia Department of Taxation is allowed to investigate and impose civil penalties of up to $1,000 for each misclassified employee for the first offense, and up to $5,000 per employee for further offenses. The new law takes effect on January 1, 2021.|
|West Virginia||ABC Test|
|Wisconsin||A&C of ABC Test|
|Wyoming||A&C of ABC Test|