The ABC test is used in some states to determine whether a person is an employee or an independent contractor for the purpose of determining state unemployment tax. Some courts using this test look at whether a worker meets three separate criteria to be considered 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.
- Customarily, the worker is engaged in an independent trade, occupation, profession, or business.
Some states, such as California, require a person to meet each criterion to be considered an independent contractor. Each factor is detailed in the 2018 California case Dynamex Operations W. v. Superior Court. In the first prong, the court emphasized that the worker needs to set their own schedule and work without supervision. Merely working at home is not enough to satisfy the first prong—especially if a company provides materials or specific instructions for the worker to meet.
In the second prong, it is explained that contracted workers that provide comparable services to that of existing employees are generally viewed as working in the usual course of the hiring entity’s business.
In the third prong, the hiring entity must prove that the independent business operation exists at the time the work is performed.
[Last updated in June of 2022 by the Wex Definitions Team]