Over the last couple of decades, many companies in California have come to rely heavily on the use of freelance labor and talent instead of hiring people on as employees. To some, this designation appears meaningless, but that is far from the case. People classified as employees have access to a myriad of benefits, like health insurance, paid time off, family leave, workers’ compensation, unemployment and more. People classified as independent contractors or freelancers receive no such benefits. They must also pay high self-employment taxes.
A new law, AB 5, goes into effect in California on New Year’s Day. Referred to as the gig economy law, the Los Angeles Times indicates this law aims to crack down on companies that have misused the independent contractor classification as a means to underpay workers and to avoid responsibilities to them. Some assert that AB 5 forces companies to cap the amount of work some freelancers, like writers and photographers, can do each year. The law actually requires companies to transfer a person’s classification to an employee after they have provided 35 submissions in a single calendar year.
Fortune magazine explains the new law outlines clear provisions for who can be classified as an independent contractor. Such workers must not have their work controlled by their clients. Companies may not set working hours or dictate how work is performed. The work produced by an independent contractor must be inherently different than that of a company’s core offering.
The original use of contractors facilitated companies getting work done when they could not afford to hire employees. The state believes many companies who rely heavily on contractors can afford to hire and pay employees.
