Worker classification policy + audit

Description

A working worker-classification policy is a written document that names which classification test applies in which jurisdiction, applies the test consistently across the workforce, and audits classifications periodically against changes in the actual engagement. The components are the policy document, a per-jurisdiction test memo that walks the analysis (ABC test in California, FLSA economic-realities six-factor test under the 2024 DOL final rule, IRS Section 530 safe-harbor analysis where claimed, IR35 status determination in the UK, the EU Platform Work Directive rebuttable presumption, the Australian sham-contracting multi-factor test, the Canadian dependent-contractor common-law category), an audit log of classification decisions and the facts they rested on, and a periodic review that catches engagements whose facts have drifted. The tests overlap and none agree on the dispositive factor. California's ABC test under Cal. Lab. Code §2775 sits next to AB2257's two-hundred-plus exemptions and the app-based-driver carve-out in Prop 22. Massachusetts runs a strict prong-B variant of the ABC test under Mass. Gen. Laws ch. 149 §148B. New Jersey's §43:21-19(i)(6) with the 2020 stop-work-order amendments runs adjacent to the federal common-law right-to-control test, the IRS twenty-factor test, and the FLSA economic-realities framework. The UK runs a three-tier worker / employee / self-employed framework with the Aslam UKSC 2021 worker-status analysis on top, and the IR35 status-determination overlay for off-payroll engagements. The EU Platform Work Directive 2024/2831 Article 5 reverses the burden through a rebuttable presumption of employment, with the algorithmic-transparency obligations layered on top. Operators that engage workers across multiple of these regimes typically maintain a separate test memo per regime rather than collapsing to a single global test. The retroactive exposure profile is what makes this Control matter. Misclassification typically does not just trigger a forward-looking reclassification: it triggers back wages, back taxes (with employer-side payroll-tax exposure that the engager cannot recover from the worker), back benefits, statutory penalty multipliers, and, in jurisdictions including California, representative-action exposure under PAGA-like frameworks. A contractor whose role drifted toward employee territory over six months is the typical reclassification finding, and the cost of that finding compounds across every similarly-situated contractor in the same workforce. Evidence formats that hold up include the classification policy keyed to the regime, the per-engagement classification audit log with the facts at the time of decision, and the jurisdiction-specific test memos showing how the analysis applies.

Applicability

Applies when: business participants include individual-workers.

How predicates are evaluated

Required by (13 regulations)

• FTC Act

  FTC Section 5 misclassification enforcement risk.

  15 U.S.C. §§41-58; 16 CFR Parts 255, 425

• CA AB5

  Cal. Lab. Code §2775 — three-prong ABC test as default; document per-engagement analysis.

  Cal. Lab. Code §2775

• CA AB2257

  Cal. Lab. Code §§2776-2785 — 200+ exemptions including B2B safe harbor (12 conditions).

  Cal. Lab. Code §§2776-2785

• CA Prop 22

  Cal. Bus. & Prof. Code §§7448-7467 — app-based-driver classification regime.

  Cal. Bus. & Prof. Code §§7448-7467

• MA Question 3 / IC Statute

  Mass. Gen. Laws ch. 149 §148B — strict prong-B ABC test.

  Mass. Gen. Laws ch. 149 §148B

• NJ Misclassification

  N.J. Stat. Ann. §43:21-19(i)(6) + 2020 stop-work-order amendments.

  N.J. Stat. Ann. §43:21-19(i)(6) + 2020 stop-work-order amendments.

• IRS §530

  Revenue Act of 1978 §530 — federal payroll-tax safe harbor (substantive consistency + reporting consistency + reasonable basis).

  Revenue Act of 1978 §530

• FLSA Economic Realities

  29 CFR Part 795 (2024 DOL final rule) — six-factor totality-of-circumstances test.

  29 CFR Part 795 (2024 DOL final rule)

• EU PWD

  Directive (EU) 2024/2831 — Article 5 rebuttable presumption of employment + algorithmic transparency.

  Directive (EU) 2024/2831

• UK IR35

  ITEPA 2003 Chapter 8/10 — Status Determination Statement framework.

  ITEPA 2003 Chapter 8/10

• UK Uber v Aslam

  Employment Rights Act 1996 s230 + Aslam UKSC 2021 — worker-status intermediate category.

  Employment Rights Act 1996 s230 + Aslam UKSC 2021

• AU Sham Contracting

  Fair Work Act 2009 s357 — sham-contracting prohibition + post-2022 contract-primacy multi-factor test. Note: Closing Loopholes No. 2 Act 2024 (effective 2024-08-26) reverses the 2022 Personnel Contracting / Jamsek contract-primacy framework for IC classification, returning to a multi-factor "whole of relationship" test. Operators should re-assess existing IC arrangements against the post-2024-08-26 framework.

  Fair Work Act 2009 s357

• CA Dependent Contractor

  McKee v Reid's Heritage Homes 2009 ONCA 916 — dependent-contractor common-law category + reasonable-notice obligation.

  McKee v Reid's Heritage Homes 2009 ONCA 916

Fulfilled by (1)

• In-house build · high effort

Magist does not accept payment from vendors. Methodology.

Evidence formats

• classification policy
• classification audit log
• jurisdiction-specific test memos