Following the passage of AB 5, many California companies will no longer be able to classify workers as independent contractors. Below are some of the common questions many have regarding this new law.
Q: What is this law and how does it impact the independent contractors of California?
A: The law codifies a California Supreme court decision regarding the classification of independent contractors. It adopts what is known as the “ABC Test” to determine whether a worker should be classified as an employee or worker. This stricter classification test replaces the previous standards set in 1989. Businesses must now prove that their workers are independent contractors through the ABC test, unless otherwise granted an exemption. Companies that do not comply can be sued by cities and the state attorney general.
Q: What is the “ABC” Test?
A: It is a three-part test to determine the classification of a worker. Under the test, a worker is presumed to be an employee, unless a hiring company can satisfy all three conditions – those three conditions are:
The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work
The worker performs work that is outside the usual course of the hiring entity's business
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity
Q: When will this law go into effect?
A: January 1, 2020.
Q: Why was this law passed? What was its purpose?
A: Legislators proposed this bill to crack down on the misclassification of workers by companies who utilize independent contractors to avoid paying additional costs associated with employees. Several large platform gig companies were directly affected by this law, including the rideshare companies which classify their drivers as independent contractors.
Q: Will Uber and Lyft drivers will be reclassified?
A: As of the passage of the bill, both Uber and Lyft have committed to fighting this law in court and have also pledged over $60 million for a 2020 ballot initiative to reverse this law. Reclassifying all their drivers as employees would force the companies to fundamentally change their hiring practices and business models in California resulting in less drivers, scheduled shifts, reduced flexibility and increased costs.
Q: What exactly is the difference between working as an employee and working as a contractor?
A: Employees, (w-2 earners), are entitled to the rights of a minimum wage, paid leave, unemployment insurance, additional benefits and employers are required to deduct state, federal and FICA taxes (FICA payments must also be made by employers). Independent contractors are not required to be provided these benefits. Also, businesses using their services do not have to deduct for state, federal and FICA taxes, nor make FICA payments.
Q: I am an independent contractor; how does this law affect me?
A: Depending on the nature of work and profession, you may have been given an exemption. If your profession was not given an exemption – it is up to the company utilizing your services to prove that you meet the three-criteria ABC test.
Q: Which professions were given exemptions?
A: Several, throughout the debates over the bill, many professions and industries lobbied for an exemption.
Nearly 90% of California's independent contractors could be affected by AB 5.
Professions given an exemption:
Doctors, physicians, surgeons, dentists, veterinarians, psychologists
Lawyers, architects, Insurance agents and engineers
Additional professional service workers such as professionals in marketing, HR, graphic design and certain artists
Hairstylists and barbers
Freelance writers and photographers (only if they contribute no more than 35 submissions to one outlet per year)
Builders and contractors
Professions not given an exemption:
Rideshare & Delivery drivers
Land surveyors, landscape architects, geologists