The gig economy has redefined expectations for working and hiring. Change isn’t always easy, but the challenges posed by AB5 can not only be overcome but used to your advantage.
California’s Assembly Bill 5, or AB5 for short, is a recent bill signed into law by Governor Gavin Newsom that went into effect on January 1st, 2020. Popularly known as the “gig worker” bill, this new law clearly defines the lines between independent contractor (IC) and a full-time employee (FTE). As it stands, many companies around the world contract with freelancers who may actually meet the legal definition of a full-time employee.
Companies like Uber, Doordash, and many talent marketplaces are all going to be put through additional scrutiny as time moves forward, but every employer in California that uses contract or freelance workers has to comply with the new law.
This particular law is certainly only applicable in California, but every state has independent-contractor laws, and a lot of businesses are violating them without knowing it. This has been going on for a long time. Way back in 1999, Microsoft paid out about $100 million to a group of “independent contractors” who the court said were actually employees. Twenty years ago, not in California.
Three Steps to Overcome Compliance Challenges:
Step 1: Redefine “Employee”
People have certain impressions about what it means to be an employee — specifically, that employees work full time for one company. Freelancers, consultants, and contractors in many cases don’t want that kind of work, which is why they contract. But here’s the thing: “employee” is a legal status that has (almost) nothing to do with how many hours you work each week or how many weeks you work.
As an employee, you can work as few or as many hours as you and your employer agree. You can also be an employee of more than one company; as many as you want actually, either one after the other or all at the same time.
Step 2: Make Compliance Work for You
In some cases, this new bill can actually save companies money. For example, when companies misclassify an employee as an FTE when they should be an independent contractor, companies can instantly save 15% of costs per resources instantly.
Want to save 15% on your contingent workforce? Chat with our team of experts for free.
In addition, with more clearly defined laws and legal precedent, companies can use these resources in order to mitigate risks themselves. Along with this and recent cases within the Department of Labor (DoL), there exists well-defined legal precedent which can be used by companies to determine best practices for their contingent workforce.
Step 3: Streamline Employment Systems
Being an employee for a short gig doesn’t need to be difficult. A recent New York Times article quotes a freelancer who asks, “Who’s going to hire me as an employee for three assignments a month?” That question is based on the mistaken idea that employment has to be a “heavyweight” process with a lot of complexity. Even today, there are many platforms that make it easy to find work when your own network isn’t leading to any fruitful opportunities.
In fact, employment can be very lightweight (meaning easy to start and end), making it practical for even short assignments. The easiest way is to use an “employer of record” service — Here at GreenLight, this is one of the services we provide. An Employer of Record (EoR) is an intermediary that employs contractors on behalf of companies for short-term or longer-term assignments. GreenLight can get a freelancer signed up as a “portable employee” in about 10 minutes, automate her invoicing and receivables, and get her paid within a few days, all while protecting the employer from legal risk.
An EoR service isn’t the only way though. Companies can also streamline their own employment processes to make it easier to employ for short duration, and some do. Most of the time, using an EoR can actually mimic an FTE experience by making it easy to offer your contractors benefits, expected and on-time payments, and to feel good going through the process.
AB5 scares people because it’s new and because it’s not well understood. It’s also being portrayed as worse than it is, because a few big companies like Uber and those who have significant financial incentive, have a vested interest in it being portrayed this way.
Being compliant will take a little effort, and there will be a modest cost, but the sky is not falling, and flexible work is not dead. There may be a short-term blip as businesses adapt, but after that blip, flexible work will continue to grow.
The experts here at GreenLight are committed to helping organizations understand AB5, drive maximum value from their contingent workforce, and make it as easy and safe as possible. Curious how we help companies? Schedule a call today.