On January 1, 2020, Assembly Bill 5 (AB 5) went into effect and may impact whether your workers are considered employees or independent contractors under California law.
If you are an employer, you may have received a letter from the Employment Development Department advising you of the new changes. As you know, AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders.
The is no grace period. Employers must pay any payroll taxes that are due based on the employees they have as of January 1, 2020.
In addition to penalties that may be assessed for wage violations associated with a worker being misclassified as an independent contractor, there are civil penalties for willful misclassification. Under Labor Code section 226.8, which prohibits the willful misclassification of individuals as independent contractors, there are civil penalties of between $5,000 and $25,000 per violation. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor.
This is a VERY convoluted bill. Do not try to tackle this on your own. The requirements for the ABC Test vs the Borrello is not clearly defined by industries.
Please be advised that if you have an administrator for your chapters, make sure they meet the requirements for AB 5. If you have not hired a firm who business is providing administrator support for multiple clients, you could be out of compliance and courting liability.
Minimum Requirements for AB 5
- Make sure you are paying via a tax id number, not a social security number
- The work they are performing is be facilitated by them to multiple clients
- You are not dictating their time
- You have an independent contractor agreement that they provided
- They maintain their insurances, workers compensation, and other liability insurance
If they are not meeting these basic requirements, they are not independent contractors. You can assist them to become business owners.
For more information or assistance contact:
Vikita Poindexter, SPHR-CA, SHRM-SCP, SHRM-CP
Poindexter Consulting Group, LLC.
NAWBO IE President
NAWBO CA President Elect
866.608.5556 TOLL FREE