Looking to hire an independent contractor in California for your business? This now be more difficult to do, thanks to the state’s recent reclassification law, Assembly Bill 5 (AB5). Here’s what you need to know about the new law and how it impacts employers and independent contractors.
What is Assembly Bill 5?
AB5 is a rule that now reclassifies a number of independent contractors in California as employees. The new law uses the “ABC” test to determine if a worker is an employee or independent contractor. AB5’s assumption is that everyone is an employee unless an employer can demonstrate that:
- The worker is free from the control and direction of the employer when performing services.
- The worker performs work that is outside the usual course of the employer’s business; and
- The worker is regularly working and operating in an independently established trade, occupation, or business.
Since the ABC test has broad factors that need to be satisfied, you should consult with an attorney if you are unsure whether your staff would pass the ABC test.
While AB5 does assume that workers are employees, there are several categories of jobs that are exempted from the law. If your work falls under one of these exceptions, you would still be classified as an independent contractor in California so long as you fulfilled the requirements of another test called the “Borello” Test. There are various exemptions to the law, including:
- Licensed manicurists and barbers, who can meet certain conditions
The state also recently expanded the exceptions to AB5 so more workers can be considered independent contractors. An employment attorney help you determine if any apply to your business or work.
What Does This Mean for CA Employers and Independent Contractors?
One major way AB5 impacts Californian employers is that it makes it harder for them to hire independent contractors. One key difference between employees and independent contractors is that employees are more expensive than independent contractors because they are entitled to minimum wage, overtime and other benefits. This means that employers in California will have to make sure they can cover these extra costs when considering their hiring needs.
The new law has also impacted independent contractors in the state. Now that many of these independent contractors are being reclassified as employees, some workers who preferred the gig economy may miss the flexibility and chance to work on multiple jobs at the same time. On the other hand, these independent contractors can now receive the stability and benefits that come with being an employee.
Overall, AB5 puts both employers and independent contractors into new and complicated territory. An experienced attorney can help you navigate the law and avoid employee misclassification that could lead to legal troubles in the future.
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