What AB5 Compliance Means for California Employers

October 2019: Update on AB5

Regarding Independent Contractors and Newspaper Distributors​

On October 2, 2019, California Governor Gavin Newsom signed legislation (A.B. 170) exempting both of the following from the Dynamex/California Assembly Bill 5 independent contractor provisions:

  • A newspaper distributor working under contract with a newspaper publisher; and
  • A newspaper carrier working under contract, either with a newspaper publisher or newspaper distributor.

Dynamex/California Assembly Bill 5 amended the California law by clarifying that a person providing labor or services for remuneration will be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied ABC Test, see below.

Read the official update: CA A.B. 170

What does AB5 Mean for California Employers?

On Wednesday, September 18th 2019 California Governor Gavin Newsome placed the final signature on the AB 5 legislation, changing the face of worker classification in California. With the fifth leading economy in the world, this reclassification affects as many as 2 Million workers; transforming them from independent contractors into employees almost overnight.

Independent contractor

This law, brought upon by the infamous Dynamex ruling, amends the California Labor Code, California Unemployment Insurance Code and the IWC wage orders. These amendments state all ‘hiring entities’ must now classify ‘all persons that provide services or labor’ as employees UNLESS that ‘hiring entity’ can demonstrate that ALL conditions of the ABC test (below) are met.

The ABC Test

  1. 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;
  2. The person performs work that is outside the usual course of the hiring entity’s business; and
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

What AB5 Classification Changes Mean for Employers

Though UBER, Lyft, and Grubhub have been the center focus due to the obvious and serious implications of this change to their business model, most employers are in the dark about what this could mean for them. As always, every major change regarding employment law comes with the unpreventable compliance nightmares, and AB5 will certainly be no different.

By January 1, 2020, California businesses, excluding those granted an exception (see below), will have to comply with the ABC test ruling or face a host of legal issues.

Workers now considered employees under the ABC test will be eligible for the following:

  • Minimum Wage
  • Overtime Pay
  • Meal and Break Rest
  • Worker’s Compensation Coverage
  • Unemployment Insurance
  • Various Benefits
  • Paid Sick Leave
  • State Family Leave (PDL, FMLA/CFRA, NPLA, FEHA, PFL, STD)

 

We’re here to help with this.

Click to Download the California Leave Requirements Chart.

And, while the law takes full effect beginning January 1, 2020, the retroactive implications of AB5 mean all previous independent contractors who are now considered employee status are covered by state civil rights laws including discrimination and harassment protections. Additionally, employers have to accept the possibility of these workers forming Labor Unions.

In short, this new employment law makes it much more difficult for many companies to classify workers in California as independent contractors, while also increasing the difficulty for these businesses to hire smaller entrepreneurial businesses.

The List of Additional Business Compliance Requirements

Above and beyond the tasks of defining workers under these new classifications, come the additional requirements such as:

  • Updating your Employee Handbook to include these compliance specifications.
  • Providing State required Harassment Prevention Training to everyone now considered an employee.
  • Calculating correct Leave Requirements.
  • Calculating Wages, Break Periods and Overtime.

The Exceptions to the Ruling

Many employers in California became aware of the potentially detrimental change coming back in April 2018, with the California’s Supreme Court’s ruling to adopt the ABC test to determine independent contractor status. Certain professions were granted amnesty under the new classification requirements. 

These exceptions include:

  • Doctors
  • Dentists
  • Veterinarians
  • Lawyers
  • Architects
  • Engineers
  • Private Investigators
  • Accountants
  • Securities Broker-Dealers
  • Investment Advisors
  • Human Resource Administrators
  • Travel Agents
  • Marketers
  • Graphic Designers
  • Grant Writers
  • Fine Artists
  • Certain Photographers or Photo Journalists
  • Certain Freelance Writers

 

Other exceptions include stipulations such as:

Commercial Fisherman are exempt for all requirements except unemployment insurance.

Estheticians, electrologists, manicurists, barbers and cosmetologists are exempt ONLY if they:

  • Set their own rates.
  • Schedule Their Own Clients and;
  • Follow several other requirements specific to independent contractors rather than employees (as per the ABC test.)

Salespersons are exempt only if their pay is based on actual sales as opposed to wholesale purchases or referrals.

Though this exemption list may continue to grow with future legislation, businesses in California must adjust to AB5 Compliance quickly. And our services can make this transition as easy as possible.

Services We Offer that Expedite California AB5 Compliance

We understand how major changes in employment law effect businesses, leaving them wondering where to turn for the right answers. The services we’re offering to small businesses nationwide will now benefit California employers in unprecedented ways. These specific services include:

These 25 Credentialed HR Advisors have extensive knowledge of California Employment compliance. They are available by phone, chat or email from 6:00 AM to 5:00 PM PST. Turn to them with all your AB 5 compliance questions, as well as other tough HR questions that arise.

Complete with Federal, State and Industry specific, ERISA Attorney Written Content; our Handbook alerts you to every compliance change in real time, providing self-updated attorney written content for your approval. One click and you remain compliant with every change. Automatic Updates are included for 1 year and can be renewed. Multi-State and Spanish translation are also available at an additional cost.

Or included with our Complete TrainingUnlimited Supervisor Participants for one low cost. This online training comes on a digital progress tracking dashboard and can be offered individually or completed in a group setting. Satisfies Ab1825/SB 1343 requirements. Spanish Version also available. Harassment Prevention Training for Employees available for additional cost.

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A private ‘search engine feature’ built specifically for regulatory compliance. Updated Daily. Provides access to state law alerts, regulation and legislation changes, white papers, checklists, forms, sample policies, toolkits and invaluable HR tools including:

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Illinois Employment Law Updates: September 2019

Illinois Governor Pritzker amended the Personal Information Protection Act to include a mandatory notice of any and all breaches to be reported to the Attorney General. 

tryHRIS’s membership includes the Regulatory Compliance Database, which alerts you the moment State and Federal employment laws, regulations or requirements change.

chicago IL Employment Law Alerts

Employment Law Update: Personal Information Protection Act Amended

This law, amended in August, is effective as of January 1, 2020.

On August 9, 2019, Governor J.B. Pritzker signed legislation (S.B. 1624) amending Illinois’ Personal Information Protection Act to require data collectors that are required to issue data breach notices to more than 500 Illinois residents, as a result of a single security breach, to also provide notice to the Illinois Attorney General (AG) that contains:

  • A description of the nature of the breach, unauthorized acquisition, or use;
  • The number of Illinois residents affected by the incident at the time of notification; and
  • Any steps the data collector has taken, or plans to take, related to the incident.

Notice to the AG must be completed in the most expedient time possible, without unreasonable delay, and no later than when notice is provided to consumers. If the date of the breach is unknown when the notice is sent to the AG, then the data collector must send it as soon as possible. Upon receipt of the notice, the AG may publish the name of the data collector that suffered the breach, the types of personal information compromised, and its date range.

The law is effective January 1, 2020.

Read IL S.B. 1624

Who will be affected by this IL PIPA amendment?

Any Illinois institution who “handles, collects, disseminates, or otherwise deals with nonpublic personal information” is considered a data collector and is directly affected by this amendment.

What constitutes "Personal Data"?

“Personal data” is defined as an individual’s first name (or initial) and last name, in combination with any one or more of the following:

  • Driver’s license number or State identification card number
  • Social security number
  • Account number or credit or debit card number
  • An account number or credit card number in combination with any security code, access code or password that would allow access to an individual’s financial properties.

If you have questions about this employment law update, our advisors can help your company navigate every new change, requirement, legislation, law and regulation. Give us a call to see how we can help streamline HR.

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Previous Illinois Law Alerts FOR EMPLOYERS

California Law Alerts: September 2019

On September 18, 2019 California Governor Newsome signed final legislation for AB 5, drastically altering worker classification compliance. See official law alert below or Read How AB5 Compliance Affects CA Employers

On August 30, 2019 the California Fair Employment and Housing Act was amended to extend the Sexual Harassment Training deadline by one year. (S. B. 778)

Additionally, the Pregnancy Leave Brochure was updated to include new rights and obligations included in the New Parent Leave Act. 

California Law Alerts for September 2019

tryHRIS’s membership includes the Regulatory Compliance Database, which alerts you the moment Federal & State laws, regulations or requirements change, keeping you informed.

Law Alert 3: Assembly Bill 5 (AB 5) Redefines Worker Classification

The new legislation amends the California Labor Code, the California Unemployment Insurance Code, and for the Industrial Welfare Commission’s wage orders, to define a person providing labor or services for remuneration as an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied for the ABC Test.

On September 18, 2019, California Governor Gavin Newsom signed legislation (A.B. 5) codifying the California Supreme Court decision in Dynamex Operations West, Inc. V. Superior Court of Los Angeles, where the court “cited the harm to misclassified workers who lose significant workplace protections, the unfairness to employers who must compete with companies that misclassify, and the loss to the state of needed revenue from companies that use misclassification to avoid obligations such as payment of payroll taxes, payment of premiums for workers’ compensation, Social Security, unemployment, and disability insurance.”

Specifically, the law amends the California Labor Code, the California Unemployment Insurance Code, and for the Industrial Welfare Commission’s wage orders (IWC wage orders), a person providing labor or services for remuneration will be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied (ABC Test):

  1. 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;
  2. The person performs work that is outside the usual course of the hiring entity’s business; and
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The law clarifies:

  • Any exceptions to the terms “employee,” “employer,” “employ,” or “independent contractor,” and any extensions of employer status or liability, that are expressly made by a provision of the Labor Code, the Unemployment Insurance Code, or in an applicable IWC wage order, including, but not limited to, the definition of “employee” in subdivision 2(E) of Wage Order No. 2, remain in effect.
  • That it does not apply to the following occupations, and instead, the determination of employee or independent contractor status for individuals in those occupations is governed by Borello (a multi-factor test):
    • A person or organization who is licensed by the California Department of Insurance pursuant to Chapter 5 (commencing with Section 1621 – insurance agents), Chapter 6 (commencing with Section 1760 – surplus line brokers), or Chapter 8 (commencing with Section 1831 – life and disability insurance analysts) of Part 2 of Division 1 of the Insurance Code.
    • A licensed physician and surgeon, dentist, podiatrist, psychologist, or veterinarian performing professional or medical services provided to or by a health care entity.
    • A licensed, practicing lawyer, architect, engineer, private investigator, or accountant.
    • A securities broker-dealer or investment adviser or their agents and representatives that are registered with the Securities and Exchange Commission or the Financial Industry Regulatory Authority or licensed by the State of California.
    • A direct sales salesperson.
    • A commercial fisherman working on an American vessel. 
  • That the holding in Dynamex does not apply to a contract for professional services, defined within the law, and instead the determination of whether the individual is an employee or independent contractor is governed by Borello if the hiring entity demonstrates that all of the following factors are satisfied:
    • The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. However, individual may choose to perform services at the location of the hiring entity.
    • If work is performed more than six months after the effective date of the law, the individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.
    • The individual has the ability to set or negotiate their own rates for the services performed.
    • Outside of project completion dates and reasonable business hours, the individual has the ability to set their own hours.
    • 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.
    • The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

Moreover, the law and Dynamex do not apply to:

  • Specific occupations subject to the state’s Business and Professions Code (real estate licensee and repossession agency);
  • A bona fide business-to-business contracting relationship under specific conditions;
  • The relationship between a contractor and an individual performing work pursuant to a subcontract in the construction industry;
  • The relationship between a referral agency and a service provider under specific conditions; and
  • The relationship between a motor club with certificate of authority and an individual performing services pursuant to a contract between the motor club and a third party to provide motor club services utilizing the employees and vehicles of the third party.

The law also states that an action for injunctive relief to prevent the continued misclassification of employees as independent contractors may be prosecuted against the employer in court, in addition to any other remedies available.

The law is effective January 1, 2020.

Read the governor’s signing message and CA A.B. 5

Law Alert 2: Sexual Harassment Training Requirement Deadline Extended.

This legislation extends the deadline from January 2020 to January 2021 due to the outcry from the business community. Employers now have an additional 12 months to provide their Supervisors and Employees with approved sexual harassment training.  

On August 30, 2019, California Governor Gavin Newsom signed legislation (S.B. 778) amending the California Fair Employment and Housing Act. Employers with five or more employees are required by January 1, 2021, to provide:

  • At least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees in California; and
  • At least one hour of classroom or other effective interactive training and education regarding sexual harassment to all nonsupervisory employees in California.

Thereafter, each covered employer must provide sexual harassment training and education to each employee in California once every two years. New nonsupervisory employees must be trained within six months of hire and new supervisory employees must be trained within six months of their assumption of a supervisory position.

The law also clarifies that an employer who has provided this training and education to an employee in 2019 is not required to provide refresher training and education again until two years thereafter. Additionally, beginning January 1, 2020, seasonal, temporary, or other employees that are hired to work for less than six months, must be provided sexual harassment training by their employer within 30 calendar days after hire date, or 100 hours worked — whichever is earlier.

The law took effect August 30, 2019.

Read CA S.B. 778

tryHRIS offers California Approved Sexual Harassment Training for Supervisors. $95 per course for Unlimited Supervisors. Completion Certificates included.

Law Alert 1: Pregnancy Leave Brochure Updated

In August 2019, the California Department of Fair Employment and Housing updated its pregnancy leave brochure to include information about rights and obligations under the state’s New Parent Leave Act.

View New Brochure.

If you have questions regarding these or other law alerts, our advisors can help your company navigate every new change, requirement, legislation, law and regulation. Give us a call to see how we can help streamline HR for professionals or office managers.

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