Several ZümiFi clients have been paying attention to the changes in California now that AB5 is in effect. One of those clients realized she would no longer be able to pay one of her part-time assistants as independent contractors.
An update
The California AB5 (Assembly Bill 5) is a state law that went into effect on January 1, 2020, and significantly impacts how companies classify their workers as employees or independent contractors.
The purpose of AB5 is to provide more job security and benefits to workers who were previously classified as independent contractors. Under the new law, many gig workers and freelancers must be classified as employees rather than independent contractors.
In recent updates, there has been significant pushback against AB5, particularly from gig economy companies such as Uber and Lyft, who have argued that the law is too broad and would force them to change how they do business. In response, several exemptions have been added to the law, including for certain professions such as doctors, dentists, architects, engineers, and accountants.
Additionally, the California State Supreme Court issued a ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which established a new legal standard for determining whether a worker is an employee or an independent contractor, known as the “ABC test.” This test considers three factors: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
AB5 continues to be a highly debated topic in California, with various parties seeking to challenge or amend the law.
If you recall, AB5 now provides VERY strict definitions of who can be paid as an independent contractor. AB5 now makes it clear that this client needs to pay and treat this person as an employee of her business. Her ZümiFi account manager, Emily, stepped up to help out. After discussing various payroll service options with the client, we recommended Gusto as the best fit for her circumstances. Emily got her all set up with Gusto and integrated Gusto with QuickBooks Online and TSheets. Hence, our client now has a seamless, easy-to-use, and very effective payroll service that minimizes the need for additional work! The client is thrilled, and more importantly, the client is now fully compliant with the restrictions under AB5.
ZümiFi – trusted solutions for today’s busy entrepreneurs!
Success Stories – AB5 Compliance
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