ABC Test – Definition for enterprise companies/businesses
Under the ABC test, the burden to show an independent contractor classification is appropriate typically sits with the hiring company, not the worker. Courts and state agencies generally look at three requirements, and if a company can't satisfy them sufficiently, the worker can be presumed to be an employee for the purpose of a given law.
Prong A asks whether the worker is free from the hiring company's control and direction in how the work gets performed, both under the contract and in actual practice. Prong B asks whether the work performed falls outside the usual course of the hiring company's business. Prong C asks whether the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed.
This is general information about how the test is generally structured. No single factor is determinative on its own, and worker classification generally depends on the totality of the circumstances in each specific case, so this shouldn't be read as a determination of how the test applies to any particular worker or engagement.
How enterprise organizations use ABC Test for worker classification risk
Enterprises with contractors in ABC-test states generally need to comply with both the state and federal standards when making worker classification decisions under relevant law, meaning workers must qualify as independent contractors under the ABC test and the current federal "economic realities test." In some situations, a worker may even be properly classified as an independent contractor under one test but look like an employee in the other. That gap is where a lot of misclassification exposure can concentrate, particularly if companies that apply one classification standard nationally without adjusting for state-specific rules.
ABC Test use cases
Assessing whether an independent contractor engagement in California, New Jersey, Massachusetts, or another ABC-test state is appropriate
Building a state-by-state classification review process for a multi-state contingent workforce program
Documenting the classification rationale for engagements in ABC-test jurisdictions
Evaluating whether a role is better suited to an employee, EOR, or genuinely independent contractor structure
How Lifted handles ABC Test
Lifted's Agent of Record offering builds state-specific classification standards, including ABC-test states, into how it engages independent contractors, and includes regular reevaluation reviews as engagements evolve. This is part of Lifted's broader compliance operation, 20,000+ worker classifications processed per year across 180+ countries, so programs aren't tracking state-by-state classification rules on their own.
Related resources
Frequently asked questions
Which US states use the ABC test?
California, New Jersey, Massachusetts, and several other states use some version of the ABC test for at least some purposes, such as wage and hour law or unemployment insurance. The exact scope and wording vary by state.
What happens if a company fails just one prong of the ABC test?
In many cases, if a hiring company can't satisfy all three prongs, the worker can be presumed to be an employee under that state's standard, regardless of how the parties labeled the relationship in a contract.
Is the ABC test the same as the federal economic realities test?
No. The ABC test is state-level standard used only when evaluating a workers classification under certain of the state's laws. A worker who might be classified as a contractor under the federal economic realities test can still be considered an employee under a state's ABC test.
