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California’s New AB5 Law: The Basics



You’ve heard the news about California Assembly Bill 5, but what is it and who does it apply to? As always, it’s important to consult an attorney on your specific situation.


AB5: What is it?


The new law more strictly defines the test used to determine whether a worker can be classified as an independent contractor. The goal is to make sure that workers are classified properly. The three-part test, referred to as the ABC test, is used to help properly classify workers.


How is an employee now classified?


Section 3351 of AB-5 states that “Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed.



Why?


The law is meant to address the concern that some workers currently classified as contractors are incorrectly classified and as a result, are not being provided with the benefits and protections that are provided to common-law employees. These benefits and protections may include minimum and overtime wage requirements, sick time, unemployment benefits, or workers compensation protection, etc.


What is the ABC Test?


Under the ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

  • The worker performs work that is outside the usual course of the hiring entity’s business; and

  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.


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At L.A. Financial Management, we work with businesses to ensure they are financially healthy and set up for success. We support businesses in everything from accounting and bookkeeping to business planning and forecasting. Visit our website to get in touch and see how we may be able to support your growth!


Sources:

Bill Text - AB-5 Section 3351 of the Labor Code (2019)

ABC Test - Independent Contractor Versus Employee (2020)








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© 2017 by Lara C. Azoy, CPA. 

DISCLAIMER: The views and opinions expressed here and at www.la-financialmanagement.com are those of the authors and do not necessarily reflect the official policy or position of L.A. Financial Management. Any content provided by our authors are of their opinion, and are not intended to malign any religion, ethic group, club, organization, company, individual or anyone or anything.

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