Smart Benefits: CA Contractor Law Reclassifies Certain Contractors as Employees

Smart Benefits: CA Contractor Law Reclassifies Certain Contractors as Employees

Legislation passed by California legislators, Assembly Bill 5, which Governor Newsom says he intends to sign, will determine whether workers are independent contractors or employees largely based on whether the company directs their tasks and the work is part of the company’s main business. And it’s likely to reclassify hundreds of thousands of workers – and employers.

Employers with independent contractors don’t have to pay payroll taxes, minimum wage or overtime, reimburse workers for business expenses or comply with other wage and hour law requirements. They also don’t have to cover their workers’ comps and aren’t liable for payments under unemployment or disability insurance or social security.

Yet some of these individuals – who work in settings ranging from construction to ride sharing companies – will now be considered an employees because of the bill’s three-part, ABC test (which stems from an earlier California Supreme Court decision) for determining whether workers should be considered employees. Under the standard, a worker will be deemed an employee unless an employer can prove:

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• The worker is free from the company’s direction and control while they perform their tasks
• The work performed is not part of the company’s core business
• The worker has their own independent business, trade or occupation

 

Not all workers who pass this test will be considered employees, however, because the bill contains a number of exemptions for workers such as doctors, lawyers, accountants, realtors, marketers, investment advisors and more.

If signed, the law would take effect in January. And it likely won’t be the last of its kind; California neighbors Oregon and Washington are already considering bills.

 

 

Rob Calise is the Managing Director, Employee Benefits of The Hilb Group of New England, where he helps clients control the costs of employee benefits by focusing on consumer-driven strategies and on how to best utilize the tax savings tools the government provides. Rob serves as Chairman of the Board of United Benefit Advisors, and is a board member of the Blue Cross & Blue Shield of RI Broker Advisory Board, United HealthCare of New England Broker Advisory Board and Rhode Island Business Healthcare Advisors Council. He is also a member of the National Association of Health Underwriters (NAHU), American Health Insurance Association (AHIA) and the Employers Council on Flexible Compensation (ECFC), as well as various human resource associations. Rob is a graduate of Bryant University with a BS in Finance