California AB 1925 May Allow Small Businesses to Avoid AB 5 Regulations

 Posted on March 25, 2020 in Employment Taxes

By now, you have probably already heard about the massive changes being instituted by California Assembly Bill 5 (AB 5). The legislation codifies California Supreme Court case Dynamex Operations West, Inc. v. Superior Court into law. In this landmark case, the court held that the majority of California workers should be classified as employees and therefore are entitled to receive all of the benefits and protections associated with employee classification. Employers must classify all workers as employees unless the worker meets certain criteria. A number of industries have criticized the new bill, stating that the strict rules will damage businesses as well as current independent contractors’ ability to make a living. California Assembly Bill 1925, which is currently being considered by the state legislature, includes a modification of the current California Labor Code that may provide relief from the strict regulations to certain businesses.

Overview of California AB 5

In order for California workers to be classified as independent contractors, they must meet the three elements listed in the following “ABC Test:”

• (A) The worker performs services without the hiring agency’s direct control or instruction.
• (B)  The worker accomplishes tasks that are not within the hiring agency’s usual course of business.
• (C) The worker is involved in a private business or form of self-employment of the same type as that involved in the work performed for the hiring agency.

Several special interest groups have filed lawsuits against AB 5, saying that these regulations are too strict and that the law is unconstitutional. The trucking industry has been especially vocal in expressing concerns about how the law will affect truck drivers currently classified as independent contractors. Drivers cannot set their own schedule if they are forced to be classified as independent contractors, and trucking groups have argued that this violates the Interstate Commerce Clause of the Constitution. U.S. District Judge Roger Benitez has temporarily exempted trucking companies from AB 5 restrictions.  

AB 1925 May Help Small Businesses Gain Exemption From AB 5

Trucking companies are not the only businesses worried about the consequences of AB 5. Many small business owners who are worried about worker classification support the amendments to AB 5 contained in Assembly Bill 1925. This bill would allow certain small businesses to be exempt from AB 5 regulations. Small businesses are defined as those that:

• Have fewer than 100 employees
• Are independently owned and operated
• Are not dominant in their fields of operation
• Have an average gross revenue of $15,000,000 or less over the past 3 years

Contact a California Business Lawyer

Many business owners who employ independent contractors are very concerned about how AB 5 worker classification rules will impact their businesses. Misclassifying workers can lead to major IRS penalties and a range of other negative consequences. For help with worker classification, independent contractor agreements, tax concerns, and more, contact John D. Teter Law Offices. Schedule a confidential consultation with a San Jose employment tax attorney by calling our office today at 408-866-1810.

Sources:

https://californiaglobe.com/section-2/federal-judge-temporarilly-exempts-truck-drivers-from-ab-5/

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1925