U.S. worker classification: the common law and ABC tests

Learn more about the two most common worker classification tests in the U.S.

March 7, 2024

If you manage independent contractors in the U.S., worker classification laws are probably a big concern for you right now. With different states taking different approaches, following both federal and state laws can get challenging quickly. And the more workers you manage, the more of a concern that they are. On top of that, state-level penalties are typically where the most risk is, so the more states you have workers operating in, the more risk you’ve opened yourself up to. 

The White House is also working to strengthen workers' rights and government agencies are agreeing to coordinate enforcement actions. All of this points to higher scrutiny on employers and more of a reason to ensure classification is as buttoned-up as possible for all of your workers. 

There are two main worker classification tests that states are using — although there are a few more that we won’t be touching on today — called the common law test and the ABC test. Depending on which state(s) your workers are in the employment relationship could be subject to one or more tests. 

Common law employee tests 

The common law employee test determines whether or not a worker is an employee, and is also commonly referred to as the right-to-control test. This is because it’s generally used to determine whether or not a company has the right to control what the worker does and how they perform their job. This test generally assumes a worker is a contractor unless any of the below are true

Does the company have control over how the worker performs their tasks? If so, the company has behavioral control over the worker. This can include dictating where the worker completes the work, what hours the work should be done within, or different rules around conduct and how the worker should behave. If the employer sets how the work itself is performed that can also be a good indicator that they have behavioral control. 

Training is another great indicator of behavioral control. Typically an employee receives training to perform their job, while a contractor does not. So if training exists for a worker, this will typically be viewed as an employee under the common law employee test. 

Does the business have control over any financial aspects of the worker’s job? The way the employer and worker interact financially helps determine if the employer has financial control over the worker. Is the worker taking other clients, or working solely for the employer? Are expenses reimbursed by the employer and do they provide equipment for the worker? If the answer to these questions is yes, then it’s likely that this would classify the worker as an employee under the common law test.  

What kind of relationship exists between the business and the worker? Relationship of the parties is the most straightforward. What does the relationship between the two parties look like on paper? If the worker’s contract or benefits look like that of an employee, they’re probably an employee. If the contract is indefinite, instead of ending after a certain period of time, they’re probably an employee. 

Another big factor is looking at the actual work performed and whether it lines up with the work the employer does. If a clown is working for a circus, relationship of the parties would probably suggest he’s an employee. If he’s performing at corporate events for a startup, this would suggest he’s a contract worker. 

The ABC Test

Another common worker classification test is the ABC test. This test is a little simpler to understand than the common law test. And unlike the common law test, the ABC test assumes that a worker is an employee unless all of the below are true: 

Is the worker free from the control of the company by contract or agreement and in practice? It needs to be proven that there is an absence of control in how the worker performs their duties in order for the worker to be classified as a contract worker or freelancer. Like behavioral control in the common law test, this looks at whether or not the employer has control over when and how the worker does the work, or how the work is done. 

Is the service performed outside the usual business for the worker? This looks at whether the work performed is “usual” for the business. If the business of the worker is significantly different than what the company does then this can cause the worker to be classified as an employee under the ABC test. Just like the clown example above. 

Is the worker customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed? If the Business of the worker is similar to that of the company, there is one final way that this worker could still be considered an independent contractor under the ABC test. If the worker can prove an established business of the same nature and prove that their business entity was formed before the work was completed, they can be classified as an independent contractor under the ABC test. 

Some things to remember

The most important thing to remember is that worker classification tests don’t just depend on the state you operate from, they also depend on which state your workers reside in. So the more workers you have, and the more locations they’re in, the more complex this will be for your business. To make it all more complicated, there are also a variety of less commonly used tests that different states use in combination with the ABC and common law tests. That’s why it’s so important to stay on top of the rules and laws for each state you have workers operating in. 

It’s also important to document everything, both internally and with your workers. Try to lean towards over-communication when it comes to classification as well, both internally and with your workers. If you are audited, it could go a long way if it shows that you were trying your best to ensure that you were fully compliant. 

You should also make sure to consider the implications of potential misclassification of workers in your business and how many workers this could affect. In the event of misclassification, you’ll need to pay penalties to the IRS or the DOL in addition to back-taxes, interest, and penalties for each misclassified worker. This is why it’s so important to minimize risk as much as possible and ensure you have each worker classified correctly. 

Worksome Classify

If this all seems excessively complicated, that’s because it is. If all of this seems too complicated for you to manage for yourself, the good news is that you don’t have to. 

Worksome Classify automates the worker classification process so that you can continue working with independent contractors and be confident that you’re hiring compliantly. This way you don’t need to focus on the ABC test or the common law test. It also minimizes risk and reduces time to hire and cost by removing manual work and making the classification process easier and more cost-effective. 

Click here to request a customized demo and learn about how Worksome can simplify worker classification — and most other aspects of your freelancer management, while you’re at it — for you today.