AB 5: Employee or Independent Contractor?

What does AB 5 consist of and how will this new law affect employers in California?

On September 11, 2019, California lawmakers passed the bill making the effective date January 1 , 2020. The purpose of
this bill is to protect workers from being misclassified, a worker will be considered an employee unless they meet all three requirements of the “ABC” test.

A. The worker is free from the control of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.

B. The worker performs work that is outside the usual course of the hiring entity’s business.

C. 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.

A worker must meet the criteria of the “ABC” test in order for an employer to classify an employee as an independent contractor.
If an employee is misclassified as an independent contractor, the employer may be liable for overdue taxes, unpaid wages and overtime, and even civil lawsuits from the misclassified worker. Additionally, in the event of an audit, the employer bears the burden of proof to defend their choice in classifying the worker as an independent contractor.

Professions that would be exempted from this bill would be: doctors, dentists, engineers, travel agents, accountants, psychologists, etc.

Although this new law may be tricky to figure out, our team at Bizhaven can give your business the right tools you need to ensure workers are classified correctly.