Posted by Larry Hurt

What all Employers Should Know about California Assembly Bill AB5

What all Employers Should Know about California Assembly Bill AB5

The California Assembly Bill 5 is a law that which restricts people that can be classified as independent contractors. It came into effect in January and can affect your business in many ways. This, especially concerns people that use freelancers or independent contractors for their business. 

Understanding California AB5

According to the California AB5, companies that use freelancers need to classify them as employee. This, however, does not hold if the company can prove that:

    •    The freelancers are free to do their work as it appeals to them 

    •    The contractors are into special service that is not related to the usual business of the client 

    •    The freelancer offers a special service that is not related to the client’s major business. 

This is referred to as the “ABC test.” According to the new legislation, all workers in California are to be classified as regular workers except their company can prove that they meet all the provisions specified in the new legislation. 

Who should be Concerned:

This was initially aimed at companies based in California. However, it is not the case alone. Many other companies are already coming up with similar restrictions. Besides, many states are using California as a specimen to determine if they should have a similar legislation. This is widespread as many companies rely on the expertise that comes with independent contractors since it offers a lot of flexibility. 

Why Firms should be Concerned?

In hiring employees that cannot be classified as independent contractors, there are many some obligations such firms should meet. Besides, it is in the best interest of such employees to take such obligations seriously as well. 

It is important that you classify any of your workers that fits into the employee status. With this, it is mandatory that you comply with many  regulations that affect workers like minimum wage requirement and other workers’ compensation like overtime payment. They are also eligible to paid sick leave, unemployment insurance, expense reimbursement and paid family leave. They are also eligible to their share of the workers’ Social Security tax. These are expenses that you should take seriously.

Another vital reason why firms should take this assembly bill seriously is the issue and difficulty that comes with the reclassification task. In the past, knowing how a worker will be classified using the existing law was a challenge. The new legislation makes this more complicated and confusing. 

What if You fail to get it Right?

Not classifying your workers right might subject your business to some losses. This will affect businesses that rely heavily on independent contractors. When you do not classify the right way, it could translate to more legal fees and unwanted litigation costs. This could also mean compensating workers for wages that were not paid. And above all, there is the possibility of losing clients for late and uncompleted projects. 

As a result, it is not important not to miscalculate as it comes with a lot of risk. 

Not only new Hires are affected 

Many firms wrongly assume that the California AB5 affects new hires only. This, however, is not right. According to the California AB5, companies must consider the role new hires will take, in addition to the jobs of existing workers. This is important to make sure that they get the classification right.

Larry Hurt
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