California Law Requires Employers to Prove Independent Contractor Status

The new year always brings new changes to businesses, such as increases to minimum wage. A more complicated law that went into effect January 1, California’s Assembly Bill 5 or AB5, holds that people working for a company should be classified as employees unless employers can prove these workers are independent contractors.

AB5 entitles workers classified as employees to labor protections—including minimum wage, sick leave, and unemployment and workers’ compensation benefits—which do not apply to independent contractors. Although this law was created with Uber and Lyft drivers in mind, it applies to any business that hires independent contractors. While the law is limited to California, it has set off debate about what constitutes an employee and may be a template for future legislation across the United States.

An article in Entrepreneur offers tips for small business owners who hold the burden of proving their workers are independents and not employees:

• Only engage with contractors who have gone through the process of creating their own company. That way you’re engaging in business-to-business payments instead of business-to-person payments.
• Ensure you are not the sole provider of the person’s income. To be truly independent, a contractor should be working on multiple projects with multiple companies.
• Ask for proof that worker have their own insurance and are paying taxes on their income.
• If you decide to keep your independent contractors, stay up to date with legislation in your state to protect the assets of your business.