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Employee vs. Independent Contractor Classification

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Understanding California AB5: Employee vs. Independent Contractor Classification

California’s Assembly Bill 5 (AB5) has significantly altered the landscape for classifying workers as employees or independent contractors. Effective January 1, 2020, AB5 imposes stricter criteria, which businesses must understand to ensure compliance.

Key Provisions of AB5
AB5 introduces the ABC test to determine a worker’s status. To classify a worker as an independent contractor, all three of the following conditions must be met:

  • Worker Autonomy: Workers must control their tasks, free from the client’s direction.
  • Outside Scope of Business: The tasks performed must be outside the client’s usual course of business.
  • Independent Business: The worker must be routinely engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Impact on Small Businesses
For many small businesses, the rigidity of AB5 could mean reevaluating how they classify their workers. While some professionals, such as web designers, CPAs, and attorneys, may still qualify as independent contractors, other businesses may need to alter their staffing strategies.

Industry Exemptions
Certain professions are exempt from the ABC test under AB5. These include, but are not limited to, insurance agents, lawyers, accountants, engineers, and real estate agents. Businesses in these sectors may not need to change how they classify workers.

Navigating AB5 Compliance
Understanding and complying with AB5 is crucial for all California businesses. Zumifi recommends that businesses unsure about its implications consult with an employment law attorney and an HR expert to navigate this complex area.

Zumifi’s Commitment
Zumifi is dedicated to supporting clients through these changes. If you need referrals to legal or HR professionals, Zumifi can help connect you with the right experts.

Contact us today or call 415.550.3070 to learn more about our experience and expertise and how you can benefit from customized bookkeeping services to meet your business needs.

Employee vs. Independent Contractor Classification

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