The “ABC test” ratified by the California Supreme Court in the Dynamex Operations West, Inc. v. Superior Court case is now recommended as the leading way to make the differentiation between an “employee” and an “entrepreneur.”

The court’s adoption of the ABC test is designed for determining whether an employee should be classified as an employee or independent contractor. This circumstance places the burden on the business, not the worker, to prove that any particular worker is properly classified as an independent contractor. This in effect, has sent California employers reeling; gaining the responsibility as the hiring entity to classify the worker under the “ABC test.”

Can Your Business Pass the ABC Test?

A hiring entity classifying an individual as an independent contractor must prove each of the following three factors:

(A)  That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

(B)  The worker performs work that is outside the usual course of the hiring entity’s business; and

(C)  The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

20+ states already use some form of the ABC test, however, for most of them the test has been used for only a particular inquiry such as unemployment insurance determinations.

In California, the state Supreme Court ruled that the ABC test should be widely applied for inquiries under the California Wage Orders as to whether a worker is considered an employee or independent contractor.

The Wage Orders regulate the conditions of employees across various industries and occupations. Some areas of the law remain uncertain, such as whether the ABC test should be applied to Labor Code or to what extent the state or local federal courts could find that an aspect of the test is assumed by federal law.

To Who Does the ABC Test Apply?

Businesses who have service workers who request to be paid as 1099 independent contractors need to evaluate the terms of the new law and classify workers. These include workers from different occupations and industries, such as truck drivers, graphic designers, seamstresses, contract accountants, IT workers, and even high-level managers. Among their most common reasons; avoiding income taxes or other tax relief benefits. However, a worker’s request to be reclassified, won’t necessarily work in the employer’s favor.

Is Dynamex Retroactive?  

Another reason employers should be concerned: the issue of whether the Dynamex decision applies retroactively. This issue could mean the difference between holding liability or merely a correction, as needed.

Businesses stand firmly against that the new mandatory test adopted by the Dynamex decision. Their reasoning maintains that it should not apply to employers retroactively because it would violate the due process. After all, businesses and their model have been established upon more flexible employee hours and factors for years.

In contrast, employee advocates believe that the decision only gave clout to existing law and therefore should apply retroactively.

Will Dynamex Apply to Joint Employment Scenarios?

The silver lining: one California court has already limited the reach of the ABC test, ruling that the test does not apply when determining whether two businesses are joint employers of an individual already treated as an employee. The court ruled that it only applies when determining whether an individual has been correctly classified as an independent contractor or freelancer.

A word of caution, however: the May 18 decision in Curry v. Equilon Enterprises, LLC comes from a state appellate court, not the state Supreme Court, so there may be further court rulings on this topic before concluding.

California businesses should carefully evaluate their independent contractor relationships with legal counsel to avoid liability going forward, as there are sure to be further legal implications clarifying the application and scope of the ABC test.

Salary History Ban Law Clarified

Governor Brown recently signed AB 2282 to clarify questions regarding AB 168 signed into law October 2017 prohibiting California employers from asking job applicants for salary information. AB 168 makes it unlawful for an employer to ask salary history information, orally or in writing, personally or through an agent, about an applicant for employment.

AB 2282 addresses questions relating to the definition of “applicant”, “pay scale”, “reasonable request”, and “salary expectations”.

The bill defines and clarifies the following.

• An applicant as an individual who seeks employment with the employers and not a current employee.
• Pay scale as the salary range or hourly wage that does not include bonus or equity.
• A reasonable request made after the applicant has completed the interview process.
• Employers may ask applicants what their salary expectations are during the interview process.

Employers are recommended to update their recruiting and pay policies to reflect the updated law before or by January 1, 2018.

ACA Individual Mandate Updated

President Trump recently signed a bill repealing the ACA Individual Mandate (the tax on individuals who are not enrolled in health insurance.) This means that the individual who shared responsibility payment (the tax penalty you owe for failing to purchase health insurance) was repealed. Which ultimately means that you will not be penalized for going without the minimum health insurance. If you want to explore alternative coverage options for 2019, then you can do so without paying a tax penalty.

So how does this affect you?

• No individual penalties for 2019
• Higher health insurance premium is predicted due to loss of customer base.
• Employers 50 or more are still under the employer mandate.
• Foreseeable repeals for the employer mandate effective 2020.

Updated Child Support Withholding Order

Effective August 31, 2018, employers should only be using the revised version of the standard Child Support Withholding Order with an expiration date of August 31, 2020. To learn more about the new version, contact the Office of Child Support Enforcement Services (OCSE).

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Voluntary benefits are benefits offered in addition to employees’ core compensation and benefits packages that employees can pick and choose from. Many employers consider expanding their voluntary benefits to compensate for increasing health care costs, which is a major factor in the recent trend toward providing a wider array of voluntary benefits.

Voluntary benefits can fill in gaps left by traditional medical offerings by providing additional options. Since Voluntary Benefits are almost exclusively paid for by the employee, they cost employers little to nothing to offer while making compensation packages more attractive to employees.

Many employees highly value certain benefits, such as dental, vision and disability insurance, making voluntary benefit offerings a great recruitment tool. Attractive benefits packages also help build loyalty and retention, reducing employee turnover and associated costs.

Employees benefit from reduced group rates, the convenience of payroll deductions and the ease of having multiple options all in one place. Additionally, a good voluntary benefits selection promotes goodwill because employees can choose the options that are best for them and their families.

There are a variety of voluntary benefit options; some of the common ones include:

• Life Insurance– employees can typically elect up to a certain amount without needing to go through medical underwriting
• Vision Insurance– typically includes a free annual eye exam and discounts on glasses and contacts
• Dental Insurance– generally covers preventive services and offers a discount on other treatments
• Long-term Care Insurance– covers the care people need when they have lost the ability to perform certain daily activities (care that may not be covered under Medicare or Medicaid)
• Short-term Disability– covers a percentage of lost pay due to time away from work because of a disability, generally up to three or six months
• Long-term Disability– covers care needed over a longer period of time, for injuries that could affect someone for years
• Accidental Death & Dismemberment– coverage in case an employee dies in an accident or loses a limb, vision or hearing.
• Accident Insurance– coverage designed to supplement by paying for injuries due to an accident
• Cancer Insurance– generally pays a cash benefit for cancer diagnosis and treatment, above and beyond traditional medical plans
• Critical Illness – supplemental coverage designed to cover higher out of pocket expenses not covered by the core medical plan.

Offering voluntary benefits is a great way to enhance your benefits package, differentiate, yourself from competitors, and increase employee satisfaction—all with little impact on your budget.

But while you may choose to offer numerous types of voluntary benefits that can deliver convenience and value to your employees, many employees may not understand the advantages of the voluntary benefit options.

It’s even more likely that your employees may be unclear about how voluntary benefits work. Educating your employees about the voluntary benefits you provide will yield the greatest value for you and your employees.

On July 08, 2018 the Trump administration announced it would temporarily suspend a program that helps health insurers in the individual market cover the costs of high-risk enrollees, injecting further uncertainty into the health insurance markets, one that could lead to higher premiums and fewer insurers offering coverage.

The reduction

The second round of cuts that began last summer – will shrink the federal funds devoted to the groups, known as Navigators, from $36.8 million to $10 million for the enrollment period that starts in November. Sound familiar? It should.

It’s just the latest of Trump administration efforts to minimize the Affordable Care Act (ACA), including a similar effort from last October when the administration abruptly cut off reimbursement payments to health insurers for subsidies they provide to consumers with low incomes. (That action caused North Carolinians to suffer an additional hike of 14.1 percent for N. Carolina Blue’s this year.)

The insurance industry is sounding the alarm about this decision. America’s Health Insurance Plans (AHIP) released a statement shortly after the announcement:

“We are very discouraged by the new market disruption brought about by the decision to freeze risk adjustment payments. This decision comes at a critical time when insurance providers are developing premiums for 2019 and states are reviewing rates. This decision will have serious consequences for millions of consumers. It will create more market uncertainty and increase premiums for many health plans – putting a heavier burden on small businesses and consumers, and reducing coverage options.”

Paying The Price

Suspending the Risk Adjustment program means insurers who cover sicker enrollees are missing out on billions of dollars they were promised under the law, and if the fund transfers aren’t restored, it’s likely consumers who will pay the price. (Risk adjustment programs exist in order to maintain a functioning health insurance market in which insurers cannot discriminate against people with pre-existing conditions.)

The ACA’s Risk Adjustment program requires insurance companies that enroll relatively healthier populations to transfer funds to companies who enrolled older, sicker, and higher-risk enrollees. This in effect, creates a disincentive for insurers to game the system (to the extent they can under the ACA) in an effort to avoid covering high risk patients. The Impact on market stability is potentially significant. Only time will tell. Stay tuned…