CA AB5 clarified things but was also stricter regarding who is legitimately considered a contractor vs. who is an employee. This new law (passed in Sept 2019) takes effect on January 1, 2020. ZümiFi is encouraging ALL clients to be aware of these new legal requirements and understand how this may (or may not) impact their business…
This new law applies the ABC test to determine whether someone is an employee. To be accurately considered an independent contractor, ALL THREE conditions must be true as follows:
- The worker controls their work and is not under the direction of the hirer.
- The worker performs tasks outside the normal course of business for the hirer.
- The worker customarily performs these tasks for this hirer and others and has established their own business doing so.
So, you cannot treat someone as an independent contractor unless they have their own business providing these services; they are truly independent of you. The services they perform are not core to your business offerings.
Many professionals (web designers, bookkeepers, attorneys, CPAs, etc.) will legitimately continue to be treated as independent contractors. But you’ll notice that these requirements are much stricter and clearer, so we know that many small businesses will no longer be able to continue treating contractors the same way. There are also several industries that very specifically are exempted from the ABC test, including insurance agents, lawyers, accountants, engineers, and real estate agents, amongst others. So perhaps your business can fall under an exemption.
The most important thing all small business owners should do is educate themselves about AB5 and how AB5 may or may not impact their business. In addition, ZümiFi strongly encourages all clients unclear on how this will impact their business to consult with an employment law attorney and an HR expert to understand how this affects future engagements fully.
Let us know if you need recommendations for these professionals.
ZümiFi has your back!