Times are changing for gig workers in CA. In a sweeping new regulation effective January 1, 2020, AB5 creates strict limits on workers that can be classified as independent contractors. According to Governor Newsom the law “will reduce worker misclassification which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.”
Under the new law, workers will be considered to be an employee if (A) the job forms part of the company’s core business, (B) if the company directs the way the work is being done or (C) if the worker does not have their own independent business. Many companies rely on freelance, contract or gig work in ride-sharing, app-delivery services, technology, and janitorial as well as professional services.
This new “ABC test” replaces the existing standard for determining independent contractor status. In recent months, several exemptions have been written into the law and doctors, accountants, architects, real estate agents, investment advisors and many other professions will not be subject to AB5.
AB5 also gives the state and cities the right to file suit against companies who have misclassified workers under the new law and overrides arbitration agreements many companies use to avoid such suits. It’s estimated that CA loses approximately $7 billion a year in payroll taxes due to misclassification.
Under AB5 workers classified as employees must be provided with worker’s compensation insurance, unemployment and disability insurance, paid sick days and paid family leave. In addition, labor unions see AB5 as a boon to organizing these workers.
Companies who use freelance or contract workers should quickly examine if these workers are included or exempted from the provisions and if not, take steps to reclassify accordingly.
Artemiste Consulting offers a wide range of Human Resources services to help your business needs. We understand the challenges employers are facing and will work with you to ensure you have the best guidance and tools available. Contact us today for a complimentary consultation.
Aisling Byrne, SHRM-SCP, CEBS, CMS is the CHRO at Artemiste Consulting where creating great places to work is our passion. Ms. Byrne is a frequent contributor to the Artemiste blog on many topics including onboarding, talent development, performance management, compensation planning, employee engagement, total rewards and learning and development.
|