The emergence of companies like Uber and Doordash has blurred the lines between employee and independent contractor. These companies have contributed to what is referred to as the “gig economy” because of the nature of the work. Individuals working for these companies can choose when and how often they work using an app to log in and start working. This business model is increasing in popularity because of the flexibility it provides for workers and employers. Are these workers considered employees and eligible for unemployment insurance, or are they independent contractors for which the employer is not responsible for paying unemployment taxes for those workers? The answer will be different depending on what state they are working in because the laws defining independent contractors vary from state to state. Legislation has recently been passed in several states regarding the guidelines that classify independent contractors vs employees.

A recent decision in New York has reversed an earlier finding from the Unemployment Insurance Appeal Board that a “gig economy” courier of Postmates was an employee. This case is just another example showcasing how these rulings from the state(s) on this topic are in flux. The individual is now considered an independent contractor. However, had this work been performed in a different state, this same worker may be considered an employee.

California is the most recent state to follow in the footsteps of many other states by creating more strict guidelines for the independent contractor classification. These new guidelines are often referred to as an ABC test because there are 3 components which include the following:

  1. The worker is free (contractually and in fact) from the control and direction of the hirer in connection with the work; AND
  2. The worker performs work that is not the hiring entity’s usual business; AND
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The ABC test could classify workers differently than previous guidelines. In many cases, it will be stricter and will classify more workers as employees than the previous standards. This change could also affect an employer’s responsibility to pay multiple taxes, workers compensation insurance and adhere to wage and hour laws, and so this emerging trend is important for employers to understand and keep a close eye on.