What You Need to Know About California's Assembly Bill 5 - AB5
If you have employees in California, chances are you received your detailed EDD AB5 Notification. This letter opens the door for four participating agencies outside of the IRS to audit your company for Independent Contractor compliance.
The California Public Utilities Commission officially ruled on June 9th, 2020, that contractors for ride-sharing companies, such as Uber and Lyft, are now to be classified as employees. With constant revisions made to AB5, staying compliant is no easy feat. Request a free consultation with TCWGlobal on 1099/IC Compliance here.
Now, remember, for an Independent Contractor to pass the ABC Test and be considered properly classified, ALL 3 (ABC) prongs must be met:
A. Work must be free from control and direction (we can usually figure this one out; your tools, your time, your expertise as a professional).
C. The worker is customarily engaged in an independent trade of the same nature as that involved in the work performed. This can easily be satisfied if the individual provides these same services to others in an independent fashion.
B. Now, let's take a look at the “B” prong:
"Outside the usual course of business.” While there is a lengthy list of professionals that have been able to lobby for exemption from AB5 (which includes doctors, insurance agents, lawyers, accountants, real estate agents, hairstylists, graphic designers, and many others), many current independent contractors and companies are left questioning the application of “B.” For example, is a computer programmer outside the course of business for ANY company?
Or what about truckers who are historically 1099s, movie stars, actors, artists, production workers, and the like? Unions are already speaking out, saying that the law isn't intended for 'them'. Certainly, exceptions are going to be made by the legislature, but in the meantime, we're all at risk.
You also have to be wary of the talent cloud. Just because a contractor is hired through UpWork, Fiverr or one of the other services, doesn't mean you are safe. Those companies will have a lot of liability mitigation of their own and may have to re-engineer the way in which they generate revenue. It's a new world for California and we all need to be more careful, remembering the wise old saying "don't be penny wise and pound foolish".
We get it. All of this new legislation can be overwhelming and confusing...so let TCWglobal take the guesswork out of your CW program.