As a business owner, you are always watching the bottom line, constantly looking for ways to become more streamlined or efficient. One of the first things you may have done to streamline your business is hire independent contractors to handle work that was previously handled by in-house employees. However, earlier this year, on April 30th, the California Supreme Court provided a new metric for determining whether an individual is to be considered a contractor or employee, when they ruled in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.

A Little Background…

In 2004, Dynamex, a national delivery and courier service provider, began to classify its drivers as independent contractors, rather than employees as it had previously done. The new classification meant that Dynamex drivers had to pay for their own vehicles, transportation expenses, and uniforms. Two drivers brought a class-action lawsuit, stating that they were actually employees, not contractors. In the Dynamex case the Supreme Court ruled that a worker must pass a three-part test – referred to as the A-B-C Test – to retain their status as a contractor, rather than an employee.

The A-B-C Test

A) The individual must be free from the control of the hiring company regarding the performance of the assigned task or job.
B) The worker must also perform work outside of that hiring entity’s assigned job or business
C) They must also have an established business of the same occupation as the work performed for the hiring company

Note For Franchisors & Similar Businesses

Obviously, Dynamex’s lack of a franchise relationship within its company excluded any discussion on how the Court’s ruling would apply in a franchise situation or other less-than-clear hiring relationships. As you explore the effects of the Dynamex ruling on your franchise, it is worth noting that a California appellate court ruled in Curry v. Equilon Enterprises that the ABC test does not apply to joint employment situations.

Applying the ABC Test To Your Company

As you consider streamlining your business by hiring contractors, take note of the new “ABC” test and save yourself the costs and expenses associated with misclassifying a worker. If you find that you need to reclassify your workers as employees, be sure to check out QuickBooks. This intuitive software can make your payroll concerns vanish and deter the costs that mislabeling can bring to you. If you need help with navigating your particular situation or using QuickBooks, contact MBS Accountancy! We are all certified as QuickBooks ProAdvisors and would be glad to help you harness this highly efficient technology. Contact us and navigate your taxes and finances with ease!