As the California law AB5 comes into effect, independent contractors across the state are feeling the effects. AB5, or the Assembly Bill 5, reclassifies many types of independent contractors as employees, giving them more protections and benefits. But for businesses that rely on their independent contractors, this can mean a significant shift in how they operate.
The main goal of AB5 is to prevent employers from misclassifying employees as independent contractors in an effort to avoid paying benefits and protections that full-time employees are entitled to under California law. The bill uses a three-part test to determine whether a worker is an independent contractor or an employee. To be classified as an independent contractor, the worker must:
1. Be free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
2. Perform work that is outside the usual course of the hiring entity`s business.
3. Be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
For businesses that rely heavily on independent contractors, such as ride-share companies, this new law has major implications. These companies have already faced legal challenges over the classification of their drivers as independent contractors, and AB5 only adds to the pressure to reclassify them as employees.
But not all businesses will be affected equally. Many industries, such as freelance writing and photography, have lobbied for exemptions to the bill. AB5 allows certain professions to continue to work as independent contractors, including licensed insurance agents, physicians, and some professional services providers.
Businesses that are affected by AB5 will need to reevaluate their relationships with independent contractors and potentially make significant changes to their operations. Companies may have to provide benefits such as health insurance and paid time off, or they may have to pay taxes and workers` compensation insurance that they previously did not have to pay for independent contractors.
In conclusion, the AB5 law is a significant change for businesses in California that rely heavily on independent contractors. Companies will need to carefully evaluate their relationships with their contractors and determine whether they need to reclassify them as employees. The law is designed to protect workers, but it could also have unintended consequences on businesses that rely on these types of employment arrangements. As with any change in the law, it will take time to see the full impact of AB5.
