One way to pass the ABC Test right out of the starting gate is to ensure the company you are working with has all the requisite licensing and business formation to be a bonafide entity vs that of an individual. Next is to find out what SIC (Standard Industrial Code) your business entity falls within. Next you'll need to ensure the entity you are contracting to meets parts A, B and C, but some research may be required in order to ascertain that the entity claims and services a different SIC business category than your entity.
For example, if you are a house cleaning service entity (SIC code 734922) and wish to subcontract cleaning jobs to another company, to pass the ABC Test, they'd need to NOT be of the same SIC code as your company (734922).
There are multiple services that you could contract with that are in a different SIC code, appearing to be compliant with AB5's ABC Test requirements. If a business entity you are currently sub-contracting work to is of the same SIC as yours, either one have to be operating a cleaning business of a different SIC code. The critical need for your business is for your sub-contractor to be able to know the scope of work needed for your job site, and be able to provide it without control or training.
In the example of house cleaning, one entity might perform work as a Janitorial entity (SIC code 734902) and possibly be able to subcontract to a Maid Service (SIC code 734923) or a House Cleaner (SIC code 734492).
This is not a guaranteed way to pass the ABC Test, due to the SIC base index being similar (7349), however the extended 6, 7 and 8 digit codes are one way to consider a possible loop-hole or compliance for using a contractor.
This could effectively put to rest any concerns for AB5 compliance.
Another path to consider is to become a licensed state contractor as a handyman or other non-specific category for any jobs that total more than $500. If both companies become licensed contractors, then so long as the scope of work being performed was within the license they have, one contractor could sub-contract to the other entity. The entities could be identical or different types of business and still qualify for this exemption as it is delineated in AB5.
You may want to have your attorney draft or look over the contract between yourself and the entity which you are sub-contracting to, and add a clause that indemnifies you and your entity should any agency deem, settle, adjudicate or make any new law as to categorize the relationship as that of an employee and employer instead of the intended independent contractor relationship.
Many small and medium-sized businesses have opted to enlist the services of a Professional Employer Organization (PEO) to make reclassification less burdensome. TEXT US us if you'd like to learn more how a reputable PEO serving your industry can help call 1-760-413-9274. CALL US
Your PEO should be able to provide close estimates regarding the direct costs associated with classifying each person as an employee, including taxes, impact on workers’ compensation insurance, health insurance, unemployment insurance, and more factors.
