IRS Not ABC

The ABC Test is 20th-century Thinking for 21st-century Work.

The PRO Act was amended in late 2019 to include the ABC test. Created in 1937 for Great Depression-era workers, the ABC test requires today’s independent contractors to pass all three prongs, or to be reclassified as an employee. If you have numerous clients, you’d be an employee of each one, even if your business is organized as an LLC or S-Corp.

PRO Act supporters say the law merely codifies existing guidelines. But most of today’s independent contractors cannot pass strict interpretations of the ABC test, because the nature of work has changed dramatically since the Great Depression.

Here’s a look at each of prongs (A, B and C) of the outdated ABC test:

(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact

Would you fail Prong A?

Prong A is about “control,” as determined by the Department of Labor employee who gets your case. So, if you’re a French horn player who must arrive at a gig at a certain time, play certain songs while wearing a particular outfit, and follow the directions of an orchestra conductor, then you may be found in violation.

(B) the service is performed outside the usual course of the business of the employer

Would you fail Prong B?

Prong B is about the type of work you perform. So, if you’re a journalist, you write and edit for a living, just like the newspaper, magazine, or website that hires you to write an article. You may be found in violation.

(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed

Would you fail Prong C?

Prong C is about the number of clients you have, and whether you are performing work that’s different from your usual work. So, if you’re an accountant creating a tech startup, a stay-at-home mom performing 10 hours of work per week for one client, or a fighter pilot who wants to go on the speaker’s circuit, you may be found in violation.

The IRS Common Law Test: The solution we’ve had all along.

The IRS already has a test to determine who is, and is not, a legally operating independent contractor. It has evolved over the years to keep up with the changing nature of work in the United States, which means the IRS test can distinguish between a truly misclassified, exploited worker and a successful professional who works for herself.

The antiquated ABC test cannot make that distinction. Its old-fashioned language is why it attacks the livelihoods of our best and brightest in the creative class and beyond.

Lawmakers should base independent contractor legislation on the IRS test, not the ABC test. Using the IRS Common Law test lets the government address the problem of worker misclassification without destroying the livelihoods of independent contractors who have specialized skills.

We are FIGHT FOR FREELANCERS USA, a non-partisan, grassroots coalition of independent contractors who oppose the PROAct. Join us.