Editor’s note: This article is the final in a four-part series explaining the new gig worker law, Assembly Bill 5. In an effort to clear the muddy waters regarding this complicated and not clearly defined law, Valley News took an online course with lawyer Kiffanie Stahle who specializes in gig workers, specifically designed to answer some of the more difficult to understand aspects of the law. In previous articles we explained AB 5 and took a brief look at each of three tests used to determine the classification of employees and independent contractors. In this installment, Valley News will explain what gig workers can do to retain independent contractor status. To read previous articles, visit www.myvalleynews.com and search AB5.
While this article serves to inform readers, it is important to note that employers and independent contractors should retain legal counsel if there are questions of concerns regarding Assembly Bill 5 for their specific business.
What is AB 5?
AB 5, which took effect Jan. 1, is legislation written by San Diego Assembly member Lorena Gonzalez and codified into law the Supreme Court of California case, Dynamex Operations West Inc. v. The Superior Court of Los Angeles County. The law requires companies that hire independent contractors to reclassify them as employees, with a few exceptions, including insurance agents, attorneys, real estate agents and certain types of business-to-business contractors and referral agencies.
Companies that are not exempt must take a closer look at how they classify employees and independent contractors to ensure that they’re not violating the terms of the law.
Determine the worker’s status
Under AB 5 employers should look at one very specific question. Who is in control? If the hiring entity is in control, the gig worker is actually an employee. If the gig worker is in control, then under the new law, they “might be” an independent contractor.
Once the employer has answered the question of control and determined the employee might be an independent contractor, then one of three tests, the IRS test, the Borello Test or the ABC Test should be used to determine the status of the worker.
So what if a worker cannot be classified as an independent contractor based on the tests?
There is plenty that both the worker and the employer can do to help the independent contractor retain their status.
What independent contractors should review
Independent contractors can do several things that will help them to retain their status. The most important thing they can do, however, is work directly with the hiring entity and provide any and all necessary documentation requested during the evaluation process.
If it is determined that the worker has both financial control and controls how the work is performed, then the contractor should look at items such as what kind of relationship they have with the hiring entity.
Is there a contract? If not, there should be, though it is important to note a written contract is not a magic bullet.
Is the contractor given any benefits? If they are given benefits such as sick leave or insurance, then the contractor is an employee.
Can the relationship be terminated by either party at any time and how could that relationship end? Is there a set end date or would the relationship continue for an indefinite amount of time? If there is no set end date, then the contractor is most likely an employee.
How does the hiring party present the contractor to their clients or customers and whose name is the work being performed under? If the contractor is presented to clients or customers as an internal team member or the work is performed under the hiring entity, then the contractor is an employee.
Finally, the contractor should look at how integral the services they are providing to the hiring company are to the what the core business of the hiring party is. If the contractor is delivering services that are core to the products or services the hiring party offers, then they are an employee.
What a contractor can do
The contractor should make sure that they hold all applicable business and professional licenses as well as insurance needed according to the laws of the county they live in.
The contractor should make sure there is a written contract for the work being performed with a clear description of services to be provided as well as an end date that specifies how the relationship will end.
The contractor should make sure that they are naming their own prices for the services being performed for the hiring entity, not the other way around.
The contractor should be providing their own equipment and working location to perform the work. Independent contractors should never not be required work at the hiring party’s place of business.
The independent contractor should be paid in accordance to the contract, not on a regular pay period like employees are paid.
One last thing, remember if an independent contractor is providing a service that is integral to the hiring entity’s business, then they are an employee, never an independent contractor.
What hiring entities can do
While there is a full list of what independent contractors can do to help them retain their gig work, there are some things the hiring entity can do to help gig works retain their independent status. The most important thing the hiring entity can do is work directly with the independent contractor to ensure the test the company uses is completed correctly.
Hiring entities can also make sure the independent contractor is free from its control and direction and that the work they are hiring the independent contractor for is work that is usually performed by the hiring party’s business.
Remember control includes training, an independent contractor should not need training and if they do, they are not an independent contractor, they are an employee.
Next, make sure that any independent contractors have financial control, that is the ability to set their own prices for the work performed. Other things to look at under financial control are what expenses are incurred and who pays those expenses, who pays for training, does the independent contractor make their services available to others and how they are paid.
A note on misclassifying an employee
Misclassifying an employee as an independent contractor can prove to be expensive if a business is caught doing so. A single month can easily lead to upward of $10,000 in fines and penalties. According to Stahle, there is one penalty alone that ranges from $5,000 to $25,000. Some of the fines and penalties include failure to pay minimum wage, failure to pay overtime, failure to pay for missed meal periods, failure to pay for missed rest periods, failure to reimburse business expenses, failure to provide accurate and itemized pay stubs and failure to pay on each payday.
Kim Harris can be reached by email at firstname.lastname@example.org.