California AB-5 law for independent contractors went into effect Jan 1

[chrisjchrisj]

California AB-5 law for independent contractors went into effect Jan 1, what if a sub-contractor that I use doesn't want to be an employee?

 

[PayrollHRGuy]

Then you will replace him with an employee.

 

[LdiJ]

California AB-5 law for independent contractors went into effect Jan 1, what if a sub-contractor that I use doesn't want to be an employee?

I have only read a little bit about it, but one sure way for the subcontractor to remain a subcontractor is to create a business entity such as an S-Corp. There could also be legitimate subcontractors. It seems to me that the purpose of the law is to prevent employers from misclassifying employees as subcontractors.

 

[PayrollHRGuy]

I have only read a little bit about it, but one sure way for the subcontractor to remain a subcontractor is to create a business entity such as an S-Corp. There could also be legitimate subcontractors. It seems to me that the purpose of the law is to prevent employers from misclassifying employees as subcontractors.

That is way too broad a statement to make about a law that has yet to see the inside of a courtroom.

 

[chrisjchrisj]

Then you will replace him with an employee.

for some reason, I don't think that is what the law is about

 

[chrisjchrisj]

I have only read a little bit about it, but one sure way for the subcontractor to remain a subcontractor is to create a business entity such as an S-Corp. There could also be legitimate subcontractors. It seems to me that the purpose of the law is to prevent employers from misclassifying employees as subcontractors.

The subcontractor is a business entity, and has other clients

 

[LdiJ]

That is way too broad a statement to make about a law that has yet to see the inside of a courtroom.

There is nothing broad about that. If a subcontractor becomes an S-corp then they are no longer operating as an individual and therefore cannot be treated as an employee. That is a statement of fact that doesn't have any direct corulation to the new CA law.

 

[chrisjchrisj]

That is way too broad a statement to make about a law that has yet to see the inside of a courtroom.

This law has seen courtrooms, and went to the calif supreme court

 

[LdiJ]

The subcontractor is a business entity, and has other clients

Logically, then that would mean that the subcontractor would remain a subcontractor. However the law is very new and untested, and if the type of entity is one that might be considered to be "disregarded", like a single member LLC, then that might not be the case.

 

[PayrollHRGuy]

The subcontractor is a business entity, and has other clients

What the law is about and what the consequences of the law are, are often two very different things.

 

[PayrollHRGuy]

This law has seen courtrooms, and went to the calif supreme court

What caused the law is what has seen court.

 

[PayrollHRGuy]

The subcontractor is a business entity, and has other clients

Here is the 3 part test that the law requires.

(A) The person 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.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.


There are exceptions...

(D) This paragraph shall become inoperative on January 1, 2023, unless extended by the Legislature.
(c) (1) Subdivision (a) and the holding in Dynamex do not apply to a contract for “professional services” as defined below, and instead the determination of whether the individual is an employee or independent contractor shall be governed by Borello if the hiring entity demonstrates that all of the following factors are satisfied:
(A) The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. Nothing in this subdivision prohibits an individual from choosing to perform services at the location of the hiring entity.
(B) If work is performed more than six months after the effective date of this section, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.
(C) The individual has the ability to set or negotiate their own rates for the services performed.
(D) Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.
(E) The individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work.
(F) The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

 

[adjusterjack]

California AB-5 law for independent contractors went into effect Jan 1, what if a sub-contractor that I use doesn't want to be an employee?

There is no "what if." You don't have a choice. If he meets the statutory definition of employee, you treat him as an employee. If he doesn't like it he can walk.

What caused the law is what has seen court.

AB-5 codifies the decision rendered in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903.

Here's a link to an explanation of the law and the text of the law:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5

 

[chrisjchrisj]

What the law is about and what the consequences of the law are, are often two very different things.

Thanks for all the replies, so, the law and consequences are untested, some entities "might" be considered to be "disregarded"; what is a small business supposed to do? If another business is in the software consulting business, as I am, I can't hire their services, I have to find someone to hire with equal knowledge and experience as that business person? Even if I just need them for just one client of mine, just for a limited amount of time?
What if the business entity and my company 'partner' together to service the client?

 

[PayrollHRGuy]

If another business is in the software consulting business, as I am, I can't hire their services,

I don't think you have actually read the law. There is nothing in it that would stop you from contracting with a bonified business. The primary thing this law does is codifies the "employer" has the burden of proof that the contractor shouldn't be, under the law, an employee.