California’s Assembly Bill 5 (AB5) redefines who is an independent contractor and who is an employee.
AB5 adopts the ABC Test to classify workers:
Is the worker free from the control of the hiring company?
Does the worker perform work outside the hiring company’s usual business?
Does the worker operate an independent business?
Any worker who does not meet all of these criteria must be a W-2 employee.
AB5 applies to businesses of all sizes in California and any business that employs California-based workers. View it as a blueprint for future legislation: Already, New York and New Jersey are expected to enact similar laws.
The bad news
Companies that don’t comply with AB5 risk fines, penalties, lawsuits, liability for back pay and benefits, and negative public perceptions.
The very good news
If some of your contractors are misclassified, don’t panic. There are flexible solutions to achieve AB5 compliance.
For more information, see our AB5 Guide.