California employers need to need to inform themselves about the changes coming their way due to the passage of AB5. This attack on gig workers could have huge consequences on your business if you hire anyone as an independent contractor. Some consultants are going so far as to tell their clients to stop using any independent contractors or freelancers whatsoever. The concern is the possibility of a lawsuit claiming that those “independent contractors” should have been employees and that you now owe back pay and penalties for not providing them with minimum wages, required health benefits, lunch breaks, and so on.
Basically, the law will impose the ABC test on all independent contractors to determine whether they should be an employee of yours or not. For someone to truly by a freelancer they must meet these three criteria: (A) the worker is free from your company’s control (B) the worker performs work that isn’t central to your company’s business and (C) the worker has an independent business, trade or occupation in that industry. If you can’t prove that ALL THREE ARE TRUE, then that freelancer should have been hired as an employee, even if it’s just as a temporary employee.
In a recent article in Forbes magazine, Heidi Lynne Kurter noted that the law sponsored by State Representative Lorena Gonzalez will put a huge burden on those who actually want to be independent:
Gonzalez’ intentions might be good, but the stark reality is hundreds of thousands of independent contractors in California will become employees under the bill. Everyone from manicurists, dancers, journalists, writers, bartenders and delivery drivers will be impacted. Business Insider estimated around 7,200 workers have lost their media jobs this year alone. As media faces major challenges in business, this number will only continue to climb as publications lack the means to bring on more employees.
Read the full article from Forbes magazine.
According to The Hollywood Reporter, the new law is causing headaches for many freelancers, especially among writers. Companies around the country are already avoiding any California-based freelancers:
Many publications that employ California freelancers aren’t based in the state and it’s not clear how AB 5 will affect them. Still, some are choosing to opt out entirely. Indeed, several freelance writers who spoke to THR say that various out-of-state employers — some with offices in California — have already told them they’re cutting ties with California freelancers.
Read the full article at The Hollywood Reporter.
How does this affect your business? You will need to think carefully before hiring any independent contractor to do anything around your company. Many will now avoid individuals (and people doing business under FBNs), and keep their outside hiring strictly to hiring other companies, since the law doesn’t affect and business-to-business transactions. Thankfully, New Wind Business Solutions is a California corporation so our clients needn’t worry about hiring us. However, this does limit our ability to hire independent specialists to help with certain types of projects.