Workers’ compensation premiums are based on payroll. This is why employment status can have a huge impact. If you use independent contractors in your operations, their payroll probably is not included in your current policy’s payroll.
California Assembly Bill 5 (AB 5) took effect January 1, 2020, and applies to all workers’ compensation policies starting July 1, 2020. AB 5 impacts whether workers are treated as employees or as independent contractors under California law. AB 5 established the ABC Test to determine whether a worker is an employee or independent contractor. Many workers you previously classified as contractors may now be considered employees.
A worker is considered an employee unless all three of these are true:
Full details: CA Labor & Workforce Development Agency ABC Test
All policies effective July 1, 2020, and after—new, renewal, or current.
There are situations where the ABC Test will not apply, and instead the older Borello Test will be used to determine employment status. (See AB 5 FAQs). One important qualifying factor for these exemptions is that the subcontractor maintains a business license and/or business tax registration if the work performed is in a jurisdiction that requires either. This is only one of many factors they must satisfy to be able to use the Borello Test in order to test independent status.
To avoid surprise charges at your Final Audit, report payroll for all contractors reclassified under AB 5. If your policy isn’t based on monthly payroll reporting, contact your agent to update your estimates.
If worker status changes during your policy term or at renewal, reach out to your agent. We’ll help adjust your policy to reflect the change.
