AB 5 -- Employment Status

On January 1, 2020, Assembly Bill 5 (AB 5) went into effect and may impact whether your workers are treated as employees or as independent contractors under California law. AB 5 is a bill the Governor signed into law in September 2019 addressing employment status when a hiring entity claims that the person it hired is an independent contractor. AB 5 requires the application of the "ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders. The California Supreme Court first adopted the ABC test in Dynamex Operations West, Inc. v. Superior Court (2018).

Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity can demonstrate that it meets all three of the following requirements:

A. The worker 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 worker performs work that is outside the usual course of the hiring entity’s business.

C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Note: After January 1, 2020, workers will be considered employees unless proven otherwise. The hiring entity must show that workers meet all conditions of the ABC test in order to classify them as independent contractors, unless there is a statutory exclusion or determination of employment. AB 5 does not change how out-of-state workers are classified.

The state has launched a new website with information, including "Frequently Asked Questions," to help you understand the ABC test, AB 5, and your obligation as an employer. Please visit Labor.ca.gov/employmentstatus, which contains information from various state entities, including:

• The Employment Development Department (EDD), which is your resource for information about your obligations as a taxpayer. EDD has created payroll tax-related resources and is preparing payroll tax seminars to provide guidance for employers.

• The Department of Industrial Relations - Division of Labor Standards Enforcement (DLSE), which is your resource for information about wage and hour laws.

• The Department of Industrial Relations - Division of Occupational Safety and Health (DOSH), which is your resource for more information about workplace health and safety laws.

• The Department of Industrial Relations - Division of Workers' Compensation (DWC), which is your resource for more information on your workers' compensation obligations.

The Labor.ca.gov/employmentstatus page will be updated as more information is available and will provide updated seminars to help employers meet this obligation.