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Simple English definitions for legal terms
ABC test
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A quick definition of ABC test:
The ABC test is a way to figure out if someone is an employee or an independent contractor for state unemployment tax purposes. Some states use this test to see if a worker meets three criteria to be considered an independent contractor: they work without being told what to do, they do work that is not part of the company's usual business, and they have their own business. In California, for example, a person must meet all three criteria to be an independent contractor. The first criterion means that the worker sets their own schedule and works without supervision. The second criterion means that the worker does work that is different from what the company usually does. The third criterion means that the worker has their own business when they do the work.
A more thorough explanation:
The ABC test is a method used in some states to determine whether a person is an employee or an independent contractor for the purpose of state unemployment tax. The test looks at three criteria to determine if a worker is an independent contractor:
- The worker is free from the employer's control or direction in performing the work.
- The work takes place outside the usual course of the business of the company and off the site of the business.
- The worker is engaged in an independent trade, occupation, profession, or business.
Some states, like California, require a person to meet all three criteria to be considered an independent contractor. The criteria are detailed in the 2018 California case Dynamex Operations W. v. Superior Court.
For example, if a company hires a freelance writer to write articles for their website, the writer must meet all three criteria to be considered an independent contractor. The writer must work on their own schedule without supervision, write articles that are not part of the company's usual business, and be engaged in an independent writing business.
However, if a company hires a plumber to fix a leak in their office, the plumber is likely an independent contractor because they work independently, the work is not part of the company's usual business, and the plumber is engaged in an independent plumbing business.
The ABC test is important because it determines whether a worker is eligible for certain benefits, such as unemployment insurance, workers' compensation, and minimum wage laws. It also affects the taxes that employers must pay for their workers.