Independent Contractor or Employee?

By Karen L. Edwards, RCS Editor.

New California law, Assembly Bill 5, takes effect January 1, 2020 and requires employers to use a strict method to determine classification or workers.

After California Governor Gavin Newsom signed the bill into law in September, he issued a signing statement saying the bill will “help reduce worker misclassification” and protect those workers who are wrongly being classified as independent contractors when they should be considered employees. Workers considered as employees receive protections including minimum wage, paid sick days and health insurance benefits.

California employers will be required to use a strict method, called the ABC test, to determine worker status, reports Construction Dive.

The Associated General Contractors of California (AGCC) issued a fact sheet to help contractors understand what the legislation and ABC test mean. The signing of AB5 brings increased costs, administrative duties, and legal risks for hiring parties on multiple fronts in areas such as payroll taxes, overtime policies, benefits, leave, insurance and more.

According to the fact sheet, “under the ABC Standard, the worker is presumed to be an employee. To have the worker classified as an independent contractor, the hiring party must show:

1. The worker is free, both contractually and in practice, from control and direction on how to perform a service;
2. The worker’s service is outside the hiring party’s usual services;
3. The worker has an independently established trade, occupation, or business of the same nature as the work performed.”

AGCC opposes some of the elements of AB5 with their CEO telling Construction Dive that it worked to minimize the impacts on the construction industry and will continue to work toward making it more contractor friendly in the future.

The effects of this bill are far-reaching beyond construction, with companies like Uber, Lyft and DoorDash reeling from the implications this could have for their drivers. They have reportedly spent millions of dollars advocating against the passage of the bill, to no avail.

The L.A. Times reported that business groups do not believe that the process to “narrow the rules for what constitutes an employee should end with the enactment of AB5.” According to the Times, Uber, Lyft and DoorDash have opened a campaign committee with a $90 million contribution to try to put the issue on the ballot in the 2020 elections.

If you are a contractor in California, reach out to your local roofing associations for guidance on what you need to do to be prepared. For contractors in the rest of the country, be aware of the legislation. If history is a predictor, things that start in California often trickle across the country to other states.

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