AB5 is Now a Law in California. What does this mean for me?
Is that independent contractor really an independent contractor?
One of the most important issues an employer faces today is properly classifying their workers as either employees or independent contractors. Making the wrong choice can be a very costly mistake, but often it’s not easy to make the right designation – especially when the rules are changing.
As of September 18, 2019, California Assembly Bill 5 (AB5) was signed into law by California governor Gavin Newsom. The piece of legislation nicknamed the “gig worker bill” potentially reclassifies millions of independent contractors as employees. The law’s purpose is to regulate companies such as Uber, DoorDash, and others who hire large numbers of hire gig economy workers. Though the law potentially affects most California companies immediately (and a few outside the state in certain circumstances), it may start the trend for other states to pass similar laws.
What Is AB5?
AB5 is based on the ruling of California’s Supreme Court in April 2018’s Dynamex decision. The law mandates use of the three-pronged test applied by the Court, known as the “ABC Test,” to determine how a worker must be classified for wage purposes. The tough test presumes that a worker is an employee, and the company has the burden to demonstrate with thorough documentation the worker is actually an independent contractor.
What is the ABC Test?
An employer must satisfy all three requirements of the ABC test to overturn the assumption the worker is not their employee. To classify a worker as an independent contractor, the employer must prove the worker:
- Is free from control and direction in performing their services;
- Is performing work outside the usual course of the hiring company’s business; and
- Is usually engaged in an independently established trade, occupation, or business.
The difficulty of satisfying all three parts of the test means that classifying workers as independent contractors is much harder for employers. This means workers classified as employees would be entitled to usual employee benefits such as Social Security, health insurance, disability, paid sick days, overtime, death benefits, workers compensation, and retirement benefits.
Does AB5 Affect All California Employers?
Even though most employers are affected by AB5, there is a long list of businesses and professions that are exempt from the harsh ABC Test, including Dentists.All individuals that are exempt from the ABC test should instead be assessed by the Borello factors to determine what their proper classification should be. .
Some other workers on the list include:
- A variety of creative professionals,
- Doctors, and
The Bottom Line
It may take some work, but with the right planning employers can get and stay compliant with AB5. Working with those knowledgeable of the new law can help you make and execute plans to keep your business running smoothly.
At HR for Health, our goal is to keep you on the right side of the law and help you avoid very costly mistakes. We have a wide range of services to handle compliance with the new law, hiring, and all your other HR needs – contact us to find out more on how HR for Health can help your professional practice.
HR for Health is one of the nation’s leading Human Resources Management Systems (HRMS) used by small to mid-sized practices. HR for Health has provided the following complimentary articles to ensure you have a game plan when addressing complex HR matters.
Quick note: This is not to be taken as legal or HR advice. Since employment laws change over time and can vary by location and industry, consult a lawyer or HR expert for specific guidance. Learn about HR for Health's HR services