CPM Worker Classification & ABC Test 2 — Questions and Answers
Question 1: Under California's ABC test (AB5), which prong requires that the worker perform work outside the usual course of the hiring entity's business?
- Prong A
- Prong B (Correct answer)
- Prong C
- Prong D
Correct answer: Prong B
Prong B of California's ABC test requires that the worker perform work outside the usual course of the hiring entity's business.
Question 2: A company hires a graphic designer exclusively for one client project. Under the economic realities test, which factor weighs MOST toward employee status?
- The worker uses their own equipment
- The work is integral to the company's business (Correct answer)
- The worker sets their own hours
- The engagement is short-term
Correct answer: The work is integral to the company's business
When the work performed is integral to the hiring entity's primary business operations, it weighs heavily toward employee status under the economic realities test.
Question 3: Which IRS publication provides the most comprehensive guidance on employee vs. independent contractor classification?
- Publication 15 (Employer's Tax Guide)
- Publication 1779 (Independent Contractor or Employee) (Correct answer)
- Publication 334 (Tax Guide for Small Business)
- Publication 505 (Tax Withholding and Estimated Tax)
Correct answer: Publication 1779 (Independent Contractor or Employee)
IRS Publication 1779 is specifically dedicated to explaining the distinction between independent contractors and employees.
Question 4: A worker passes Prong A and Prong C of the ABC test but fails Prong B. What is their classification?
- Independent contractor because they passed two of three prongs
- Employee because all three prongs must be satisfied for contractor status (Correct answer)
- Statutory employee regardless of prong results
- The determination defaults to federal common law
Correct answer: Employee because all three prongs must be satisfied for contractor status
All three prongs of the ABC test must be satisfied for a worker to be classified as an independent contractor; failing any single prong results in employee status.
Question 5: Under the FLSA economic realities test, the degree of the worker's investment in equipment and facilities is examined primarily to assess:
- Whether the worker has sufficient capital to operate independently
- The permanency of the working relationship
- Whether the worker is economically dependent on the employer (Correct answer)
- The skill level required for the work
Correct answer: Whether the worker is economically dependent on the employer
Investment in equipment and facilities helps determine whether the worker is truly economically independent or dependent on the hiring entity, which is the central inquiry of the FLSA economic realities test.
Question 6: Which of the following workers is most likely to qualify as an independent contractor under the ABC test?
- A truck driver who hauls goods only for one retailer using the retailer's trucks
- A licensed electrician who performs residential wiring for multiple homebuilders (Correct answer)
- A data entry clerk who works daily at a staffing agency client's office
- A warehouse worker supervised by the client company's floor manager
Correct answer: A licensed electrician who performs residential wiring for multiple homebuilders
A licensed electrician working for multiple clients in a trade outside the usual course of those clients' businesses satisfies the ABC test's prongs for contractor status.
Question 7: When a state uses the 'suffer or permit to work' standard for worker classification, which statutory framework does it most closely align with?
- IRS common law control test
- FLSA economic realities test (Correct answer)
- ABC test Prong A
- Section 530 safe harbor
Correct answer: FLSA economic realities test
The 'suffer or permit to work' standard originates from the FLSA and is used in the economic realities test applied under federal and many state wage-and-hour laws.
CPM Worker Classification & ABC Test 2
Under California's ABC test (AB5), which prong requires that the worker perform work outside the usual course of the hiring entity's business?