California Dynamex Decision – Overreaction or Harsh Reality?
The California Dynamex decision hit the Workers Compensation airwaves and blogosphere over the last few weeks.
An article by WorkCompCentral noted reactions across the country. I cannot link to the article as it is behind a paywall.
Check out this article on the previous recycled crises – no, this one is not counted as a recycled crisis yet. A great article by Tony Marks in Forbes Magazine covered the case very well – more from a franchising perspective.
The California Supreme Court retooled the contractor-subcontractor relationship into three points of consideration: (distilled for brevity)
- The degree of control by the main contractor
- The subcontractor performs work that is not the usual work performed by the contractor
- The subcontractor has a business that is independently established in the same trade from the contractor
- I added in this one as carriers are now including it in their workers’ comp audits – the subcontractor is not integral to the contractor’s existence.
Bullet point #4 was added by me as this question has been asked of me by a few California companies that have recently gone through the premium audit process.
The case of Curry v. Equilon Enterprises, LLC (2018) (CA Court of Appeals) limited the four tests in the area of joint employment. The link takes you to a search for the case.
IRS Has Great Tests for Subcontractor vs Employee
The Internal Revenue Service has a great test that still satisfies most of the concerns when deciding on whether a worker is a subcontractor or employee. The IRS has more worker classifications such as Statutory Employee, Non-StatutoryEmployee, and even a governmental employee.
Yes, I realize it may not fit every state. The three tests are:
- Behavioral Control
- Financial Control
- Relationship of the Parties – contracts are important
A great PDF from the IRS can be found at this link. The PDF breaks the three elements down even further. Of course, discussing everything with your tax professional is always recommended by the IRS. The California Dynamex decision should be a conversation starter.
One area from the PDF that I had not covered was the test the IRS gives when doing an employee audit. They are:
- Consistency test – everyone that has the same job type is paid as a subcontractor
- Reasonable basis test – this one needs to be covered in the same manner as the IRS
In order to meet the reasonable basis test, you must have treated the worker as a subcontractor because you reasonably relied on:
· a court case or ruling to support your position,<<interesting statement
· a prior IRS audit,
· a long-standing practice in your industry, OR
· demonstrate, in some other manner, any other reasonable basis for treating the worker as a subcontractor
Tennessee Says 20 Point Test
According to Business Insurance Tennessee wants to have a 20 point test that was established by the IRS. I do not see 20 points in the IRS websites. The Legislature may be counting even the test subsets as a test.
Tennessee referring to the IRS test may be seen as a good sign for consistency. The IRS standard may be the best method for considering whether a subcontractor is not an employee, regardless of the Calfornia Dynamex decision.
Bottom line – even before the California Dynamex decision, the states and Feds started enforcing the contractor rules more stringently.
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