Ask The California Employment Tax And Payroll Tax Attorney – Biden Cancels Trump’s New Independent Contractor Test?

By Robert S. Schriebman

2021

Introduction

If you are a fan of old Laurel and Hardy movies, you may recall what Hardy said to Laurel after one of their famous comedic debacles, “Here’s another nice mess you’ve gotten us into.” In March 2021, the Biden administration set aside the new test to determine independent contractor status brought about by the Trump administration. The 5-point test was specifically designed for the trucking industry but had potential broad federal application.

These where the new factors designed to determine if a worker was an employee or an independent contractor:

• The nature and degree of control
• The opportunity for profit or loss
• The skill required for the job
• The degree or permanence of the employer-employee relationship
• Was the work performed an integrated unit of production?

Let’s compare this 5-point test to the ABC test we have in California as result of both AB-5 and AB-2257. You may remember that AB-5 was repealed in favor of a broader application and pressure from the entertainment industry. Under the ABC test, a person providing labor or services for compensation is considered an employee rather than an independent contractor unless the hiring entity demonstrates that the worker is free from the control and direction of the hiring entity in connection with the performance of the work that person performs that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business. If the ABC test is met, and the worker appears to be an independent contractor or the provisions of AB-2257 state that the occupation set forth qualifies for independent contractor status, one still has to apply the tests set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 350 (1985).

What Do We Do Now?

With the setting aside of the trucker-test standards, it appears that the new administration has created, “another nice mess you’ve gotten us into.” It is too early in the scheme of things to predict any clear path. But it seems to me that the federal government’s fallback position may be the standards set forth long ago by the IRS in creating the infamous “20-factor test.” Although there are 20 factors, do not make the mistake by thinking that each factor weighs 5% on either side of the scale. There are plenty of examples found in IRS audits, and EDD audits as well, where the taxpayer-employer has 15 factors in its favor and the government has only 5 in its favor. Guess what? — the taxpayer-employer loses. Both the IRS and the EDD will play their “trump cards” finding some element of control and the fact that the worker’s services are an integrated part of the employer’s business. Those two factors alone are enough to win the day for the government.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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