Under the proposed Protecting the Right to Organize (PRO) Act gig workers including freelancers, independent contractors and temporary workers would need to pass a test to be classified as gig workers.
There are two tests currently used to determine the status of an independent contractor. The ABC test, which grew out of California’s AB 5 labor law has been incorporated into the federal PRO Act.
The common law or IRS test has been used by sole proprietors and independent contractors for decades to file and pay federal, state and local income tax, as well as Social Security and Medicare taxes.
ABC vs IRS tests
The ABC test was a result of a 2018 California lawsuit Dynamex Operations West, Inc., v Superior Court, according to The Balance Small Business website. It was incorporated in 2019 as the way to define gig worker status during California’s adoption of its controversial AB 5 labor legislation, according to USA Today.
According to The Balance website workers must pass all three components of the ABC test to be considered independent contractors – failing any one of the three negates the independent contractor’s status.
The ABC test says:
- Contracted workers are free of hiring control and work performance management to complete the work for which they were hired.
- The contract worker performs work that is outside the usual course of the hiring company’s business.
- The contract worker is customarily engaged in an independently established trade – operates her own business.
The IRS test’s main checklist as described in a report by The Homebase website says:
- Independent contractors conduct business at their own location, on their own time and have complete control over how the work is done.
- Independent contractors are not reimbursed for expenses. They use their own equipment or tools and resources.
- They are responsible for a project’s profit or loss.
- A written contract defines the work and relationship between the independent contractor and the hiring company.
Independent contractors are responsible for paying all required taxes and receive no health or medical insurance, vacation time or sick pay benefits from the hiring company.
They also have a roster or multiple customers with whom they do business.
For more on the Pro Act and it’s potential impact, click here.