HOW WILL NEW US CONTRACTOR LAWS AFFECT YOUR BUSINESS?

The vast gig economy is about to change and although it is only taking effect in California, the leader in laws regulating employment, is often followed quickly by other US states. So, how does this affect YOUR business?

Californian law expert, all-round superwoman and self-confessed badass, Emily Baker is all over it.

She explains how these new laws will affect you and your use of US-based contractors.

“Even if you don’t live in California, this will still apply to other US states soon as these laws will likely be making their way across the country, once the process is streamlined,” Emily said.

If your business is Australia, for example, and you use freelance workers in the US, then the bill means you will be liable to pay state

taxes for that worker.

In September of 2019, Governor Newsom signed Assembly Bill (AB) 5 into law. The new law addresses the “employment status” of workers when they are claimed to be an independent contractor and not an employee.

The bill could require Uber, Lyft and many other ‘gig’ companies to treat workers as employees, with all of the benefits of an employee.

Why? “Assemblywoman Lorena Gonzalez, the Democrat who authored the bill, said it is designed to stop businesses from gaming the system by misclassifying workers.Federal and State governments believe that freelancers are being taken advantage of from big

companies like Uber, Lyft and newspapers etc. They are trying to protect the workers by enforcing that everyone should be hired as an employee,” she said.

Host of the Gut Legit Law And Shit podcast, Emily is a Calfornian attorney with over 15 years experience and more than 10 years experience as deputy district attorney for LA. She has prosecuted almost every crime imaginable, twice over. Emily predicts Gonzales’ Bill is going to cause many business owners and contractors huge headaches.

“What it means is, California wants to stop what it claims are ‘free-riding businesses’ from passing their own business costs on to taxpayers and workers. Gig companies, or companies who use mainly freelance contractors, have stretched branding and worker classification boundaries with vast armies of “nonemployees.” And, it’s going to become It will be mandatory that workers are classified correctly. That means, under the new AB5 (Assembly Bill 5) most contractors will be re-classified as “employees” rather than as an independent contractor. Employers will need to hire them as such or face huge penalties.

Having employees triggers federal and state tax withholding, anti-discrimination, health care, pension, worker’s compensation and unemployment insurance obligations. Employers avoid these extra costs by hiring independent contractors, but now, they may not have a choice.

“If you work as an IC or freelancer and the government decides you are misclassified, you and the business are on the hook. Classifying yourself is now vital,” Emily said.

A worker will generally only be considered an independent contractor if the work they do is outside the usual course of a company’s business. And, if a company exerts control over how they perform their tasks, or if their work is part of a company’s regular business, they will be classified and employee.

“If the company uses your services in a way that deems you an employee, rather than a contractor, then you will be on the hook for back payroll taxes and fines, fees and interest.

Uber is already talking litigation, arguing that being a second source of income is the reason companies, such as theirs, even exist. This goes for IT companies and

“Californian law is

changing so that businesses in California are not outsourcing all their work outside california because the freelancers will be required to pay Californian state tax. This kind of boxes businesses in.

“This is about bringing revenue into California rather than protecting freelancers. I think this is a money grab,” Emily says.

“Many contractors’ livelihood is gig work. Photographers, writers, wedding planners, (the list is endless) sustain an income contracting out to multiple companies, whereas now, they will be expected to be hired by those companies as paid employees. The catch is, if you are an employee, all of your work actually legally belongs to your employer. Designs, words, creations etc. It will all belong to them.”

Under the IRS test, to determine who is an independent contractor, the IRS says you must evaluate 20 factors, and assess whether you are controlling the method, manner and means of the work.

“Violations for items such as unpaid wages, missed meal and rest breaks, and overtime would be available to a worker misclassified as an independent contractor. It’s just not worth risking wrongly classifying your workers once this bill is under effect.”

“Unfortunately, even if your employer is happy to contract you, you are happy to freelance, you will STILL have to work with these new laws.” Who will it affect?

If your business is in California.

If your business address is California, but you live in another state or country, this will apply to you.

If you run a business OUTSIDE the US, but you use contractors in the US, then this new bill will affect you. You will be required to jump through the local tax hoops relevant to that contractor.

Read more about IRS laws on Emily’s website and see how your business will be affected.

This 2 hour interview is full of invaluable information about these changes - listen here.

https://www.crowdcast.io/e/interviewwith-emily-baker

www.emilydbaker.com

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