California’s Independent Contractor Law and What it Means for Your Business

Although it’s no surprise to many, in today’s ever changing job market, digital is the new norm. Over the past 10 years, we’ve seen a dramatic change in the job market, specifically in the amount of freelance workers, defined as Independent Contractors (hereby referred to as IC). Last year alone, the estimated amount of ICs in California was around 8.5%, a marked increase from the US average of 6.3%.

This change in the employment field has been accompanied by employee benefit worries with large companies like Uber, Lyft, Postmates, and more. The concerns faced with these types of ICs are the increasingly lower wages, no access to health or retirement benefits, and chronic instability in income and work lives.

A Game Changing Law for Employers

A recent law passed in California will change the way ICs are defined, meaning that 2 out of every 3 workers in California will now be considered contracted employees, instead of Independent Contractors. In order for an IC to be legally recognized as independent and not a contracted employee, and therefore free from regular employee benefits, the following 3 conditions need to be met:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under contract and performance of the work, and;
  2. The worker performs work outside the usual course of the hiring entity’s customary business, and;
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work they are performing for the hiring entity.

An ABC test, an adopted test by the Supreme Court in the case of Dynamex Operations v. Superior Court, considers all workers to be employees and forces a hiring employer to bear the burden of proving otherwise.

What does this mean for your business?

The approval of this legislation, which was implemented on 01/01/2020,  means that businesses need to be very aware of the classification of their individual employees, and whether or not they can be identified as Independent Contractors or are considered contracted employees. Business owners should pay close attention to new laws, especially those that protect your employees and business.

Those employees who were once classified as ICs, will now be eligible for employee rights and benefits otherwise reserved for contracted employees, such as minimum wage, time off, parental leave, medical and dental insurance, retirement benefits, and more. MMC HR, a highly regarded HR outsourcing and consulting company in Los Angeles, recommends that all California business owners talk to an HR expert regarding their specific company and situation. An expert with MMC commented:

“This new legislation is great for workers rights, especially in California, where some Independent Contractors may be misclassified unknown to them. Big businesses are fighting the law as it will make many workers now eligible for rights that were otherwise unavailable before. However, many businesses should be well protected against lawsuits as long as they revise their employee classification and adjust status as needed.”

For now, the new legislation passed in California is a step in the right direction for workers rights, especially in a job market that is less defined than ever. Only time will tell how big businesses adjust their strategies to offer employee rights and benefits. Click here for more in-depth information on the Independent Contractor legislation.

Talk to an MMC HR expert today to make sure your business is completely protected with the new legislation. Call 800-899-6624 or click here for our MMC’s complementary audit request form today.

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