California worker classification legislation has tax implications
Wednesday, February 12, 2020

California worker classification legislation has tax implications

By Payroll and Entitlements Editorial Staff

Recent legislation may impact whether workers are treated as employees or independent contractors under California law. Worker classification has income tax implications, and this is nothing new. There are different tax reporting and filing requirements for workers classified as employees or independent contractors. The Franchise Tax Board has answered some frequently asked questions about the legislation to help workers achieve tax compliance.

The Legislation--A.B. 5. A.B. 5 took effect on January 1, 2020. It addresses employment status when a hiring entity claims that a person was hired as an independent contractor. It codifies a portion of the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018). It requires application of a 3-part test, commonly known as the "ABC test," to determine if workers in California are employees or independent contractors for purposes of:

  • the Labor Code,
  • the Unemployment Insurance Code, and
  • the Industrial Welfare Commission (IWC) wage orders.

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