Alabama Statute Establishes IRS 20-factor Test for Classifying Workers

From JDSupra, Richard Reibstein reports on a new law in Alabama that establishes one standard, the IRS 20-factor teste, for classifying workers as employees or independent contractors. Richard writes:

A NEW ALABAMA LAW PROVIDES A UNIFORM TEST FOR IC STATUS. On April 19, 2021, Alabama Governor Kay Ivey signed into law House Bill 408, which sets forth a uniform test for IC status in the state.  It will become law on July 1, 2021.  The Alabama statute requires the Alabama Department of Labor and its Department of Revenue to use the 20-factor IRS common law test for determining independent contractor status. The IRS’s traditional standard contains the ‎most business-favorable test for IC status. The new law states specifically ‎that the IRS test shall be used to determine whether a worker is an employee or independent contractor. It appears that the ‎IRS test ‎will be applicable to wage and hour as well for unemployment insurance purposes. The new ‎law ‎does not apply to determinations of worker status under the Alabama workers’ compensation law, however.‎ In addition, it adopts for tax and labor purposes the “safe harbor” test in Section 530 of the federal Revenue Act of 1978, available to businesses even if they fail the 20-factor IRS common law test. That statute requires the alleged employer to prove it (a) had a “reasonable basis” for having classified the workers in question as independent contractors; (b) issued Forms 1099 each year to those workers; and (c) treated similar workers as contractors and not employees.  As reported by Alabama attorney Bruce Ely in his recent article, the vice president of Governmental Affairs for the Business Council of Alabama stated: “This new law will provide a safety net for employers when it comes to properly classifying their workers. This will also provide small businesses with clear and uniform guidelines on employee classification and will create an environment where [in most cases] they only have to be concerned with following one set of standards…”

Source: Ride-Sharing Industry Prevails, While Trucking Industry has More Legal Work to do: April 2021 News Update | Locke Lord LLP – JDSupra

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