At first sight, California’s AB5 Law sounds vague and broad. Does that mean your event company can’t work with freelancers anymore? Should you bypass new bookings in California to avoid stringent regulations?
Don’t worry, it’s not all bad. No need to cancel upcoming events. The law aims to better protect workers and ensure independent contractors don’t get taken advantage of.
Here’s everything you need to know about the AB5 law so you can remain compliant whether you routinely work in California or are thinking of expanding your operations:
What is AB5 and who does it apply to?
California’s AB5 Law, also known as the gig worker bill, has codified a new system to determine whether gig economy workers are independent contractors or employees working under contract.
This new law aims to better protect crew and employees and ensure fewer people get taken advantage of and lose out on benefits due to loopholes. Because contract employees are entitled to greater labor protection such as minimum wage, paid sick leave, and unemployment.
Does the AB5 law apply to my event company?
If you’re an event or production company that:
- Is based in California,
- Works with freelancers who are California residents (even if the event takes place in another state),
- Organizes events in the State of California,
The AB5 Law applies to you.
How to determine if someone is an employee or independent contractor in California
As an employer, you’ll need to prove that your short-term workers don’t qualify as employees. How can you do this? Until 2018, the Borello test was used to determine this. Now, companies need to use the ABC test, also known as the Dynamex ABC Test, to determine whether someone is an employee or an independent contractor.
The ABC test highlights three conditions a person must meet to be considered an independent contractor. These are:
- An independent contractor must be free from the control and direction of the company they're working for. Meaning you have no say over a worker’s schedule, work location, or how the work is performed. If you are dictating all of these aspects, then this person is classified as an employee under the AB5 Law.
- An independent contractor must be performing work that is outside the course of your company's usual business. For example, hiring a designer to redo your website can be justified as an independent contractor.
- An independent contractor must have an established business of the same nature as the work performed for your company. For example, degreed professionals such as lawyers could qualify as independent contractors under this criteria.
How does California’s AB5 law impact the AV and event industry?
A lot of companies in this industry rely on freelancers to help them during events and productions. From stagehands to brand ambassadors, these people often only come to work for your company when a specific type of event is being held.
Because these people are labeled as independent contractors (or 1099 freelancers), they need to maintain their own worker's compensation insurance and are not entitled to benefits such as sick time or overtime.
However, with the passing of the AB5 Law in California, some of your freelance help may now be considered employees. To determine if that’s the case, ask yourself these two questions:
- Do you provide your crew with any direction when performing work on your event?
- Is your crew performing work outside of your typical scope of work?
If you answered yes to either of these, you’ll need to revisit your working arrangement with the freelancers you employ.
How can I keep running my business and remain cost-effective while complying with AB5?
We’ve explained a lot of facts that can feel overwhelming, but it’s not all bad. If you operate in the state of California, here’s what you can do to keep your business running and stay in compliance with AB5.
Review your work classification
For starters, review your worker classifications to ensure that everyone who works for you or with you is properly classified as an employee or independent contractor. This will help you avoid legal risks and potential fines down the line. And it’s fairly easy to hire people as temporary event staff.
Analyze the cost of your freelancers
In addition, analyze how much your freelancers are costing your business. Using Rentman’s Crew Scheduling software, look at their tracked hours and pay rates. See how often you’re working with certain people and how much it’s costing you. If you rely on a handful of people often, it could be worth hiring them as temporary staff.
Offset additional costs by adjusting your rates
If you do need to hire more in-house employees, you can offset this cost by increasing your rates. Educate your customers about AB5 and explain how one hundred percent of the people you're sending on-site will be contract employees. This will create a sense of safety and loyalty amongst your customers.
In addition, the advantage of hiring someone in-house over an independent contractor is that you’ll be sharing the FICA tax burden with your employee. And that’s money you get to keep in your pocket.
Find the right worker’s comp
Another option to offset costs is to properly research and shop around for the right worker’s comp insurance. Find the best option that fits your business requirements and provides the exact coverage you need.
AB5 is here to stay
The AB5 law is here to stay as courts have refused to strike it down.
However, it’s not all negative. Your event and production company can keep operating in California. Simply think back to the ABC test when considering the extra manpower you will need for an event. You might need to hire temporary workers instead of independent contractors, you can offset those costs via the event itself or by putting systems in place that help control costs.
Armed with information, you can operate in California with a lot more ease.
FAQ
Frequently asked questions
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What is the ABC test?The ABC test, also known as the Dynamex ABC Test, determines whether someone is an employee or an independent contractor. Based on three criteria, you’ll know if someone meets the standards to be considered an independent contractor or not.
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What is the Borello test?Before the ABC test, the Borello test was used to determine whether someone was an independent contractor or an employee. As of January 1st, 2018, the Borello test has been replaced by the ABC test.
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How does the ABC test compare to the Borello test?Both the Borello test and the ABC test puts the burden on companies to prove whether a worker is an employee or an independent contractor. But, the ABC test is designed to make it easier to determine ahead of time whether someone can be considered an independent contractor or not. So your company knows upfront the situation you’re getting into.
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What are the penalties for misclassifying an employee as an independent worker?Making such a mistake will be a costly one for your business. Fines range from $5,000 to $25,000. So you’ll want to avoid such a situation at all costs and get informed beforehand.
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How does AB5 impact workers?AB5 changed the status of some independent workers to employees. Meaning these people are entitled to benefits such as minimum wage, paid business expenses, sick days, and work breaks. However, this also means such workers have less freedom when it comes to deciding their working hours.
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Is the AB5 Law affecting all states?No, the law is only applicable to the State of California. But it does impact you even if you don’t operate there but work with independent contractors that are California residents.
