Is Your Company a True Independent Contractor? Why Does It Matter? ABC Test and 2021 Exemptions

An independent contractor is an individual who contracts to perform services for others without having the legal status of an employee. Taxwise, as an independent contractor, you pay taxes on the amount you earned minus the costs of running your business. You can enjoy numerous deductions when you file your taxes on tax day.

The status of an independent contractor is usually established through a contract. However, California has its own test to determine if you qualify as an independent contractor. Welcome to introduce the ABC test.

Under the ABC test, you are still considered an employee and not an independent contractor, unless the hiring party satisfies the following three conditions:

• You are free from the control and direction of the hiring party in connection with the performance of the work, both under the contract for the performance of the work and in fact;

• Your work is outside the usual course of the hiring party's business; and

• You are customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Your business can be exempt from the ABC Test if your business-to-business relationship with the hiring party is in writing and meet the following criteria:

• free from the control and direction of the hiring party;

• provide services directly to the hiring party, not to customers of the hiring party;

• specify the payment amount, rate, due date;

• a required license or business tx registration if laws require so;

• maintain a business location that is separate from the hiring party;

• customarily engage in an independently established business;

• free to engage similar services without restrictions from the hiring party;

• hold yourself out to the public as available to deliver services;

• make available for your own tools, vehicles, and equipment;

• can negotiate your own rates;

• can set your own hours and location of work;

• not performing the type of work for which a license from the Contractors' State License Board is required (mainly for the construction industry).

Now, you know the test. It's more than just ABC; it goes on to the letter "O," if you include the other 12 criteria effective January 1, 2021. Happy 2021.

Mr. Wang is bilingual in English and Chinese. As authorized to practice in both Taiwan and the United States. Mr. Wang handles general litigation and business-related legal affairs in Taiwan, all courts of California, and several federal courts in the United States.

"Be not angry that you cannot make others as you wish them to be since you cannot make yourself as you wish to be." (Thomas a Kempis, Imitation of Christ) Any questions, email jake@bethelandjacobs.com