What is CA AB5? Is there a upside to it?
One of the new laws for 2020 is California Assembly Bill 5. I’ve heard it referred to as the “gig job bill” “Uber Bill” and more. In short it is a bill that tries to define and clarify the difference between Independent Contractor and an Employee. The idea behind it is good – so many people, mostly lower income are being taken advantage of just because they want to work more and earn more money. But in many cases – these people actually wind up making less than minimum wage. So… with good intentions they set out to codify California’s State Supreme Court decision Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Then things got…. messy. This isn’t a post about politics, so I’ll just say that lobbyists got involved and argued for protections for their various industries. And that’s not all a bad thing either. The confusing part to many is how haphazard the resulting exemptions and modifications look.
I’d like to step away from the political aspect to the bill, and look at a hidden positive.
Separation of Ongoing Businesses from “gigs”
What do I mean be this? I’ll use photography as an example. There are a lot of people with cameras that will take your portrait, wedding photos, graduation photos, etc. Some are amazing photographers, (some are not). But if they aren’t treating their craft like a business, it can leave the buyer – and the photographer in serious trouble. The hobbyist photographer likely doesn’t have adequate insurance, may not know how to properly estimate a job, and if it’s not their main career, they can leave you hanging if something else comes up. There’s often no place to leave or check reviews (good and bad). Does the photographer have a business license? Reseller Certificate? EIN number? If your business hires someone that doesn’t have an established business, you are leaving yourself open to trouble under California AB5. While this looks bad for some, it’s a positive for photographers running their business as a business! It’s also an opportunity for those not taking it seriously to step up and do so. I’m not implying that you need to work full time to be a legitimate business, just treat it as one, even if you only do so on nights or weekends.
Does that sound like work? Well, it is, but there are so many more benefits. It could help with your taxes. (see your favorite tax professional for details). Running your side gig as a business will let you see if you are actually making money at it. I see many folks muddying their costs and income with their personal finances and they never really know if they’re making money or not. It will help you make more informed decisions about your pricing, your expenses, and maybe ultimately if it’s worth quitting your day job for your own business.
CA AB5 Legitimizes Businesses that take their craft seriously
As a web designer, many of my clients have come to me because they had their initial website built by “some person” – not a business. That person often leaves, goes away to college, decides to do something else, and leaves the businesses they designed sites for in the lurch. Now, all of this could happen with a web design agency too, but if the time and expense commitment has been made to start a business, chances are they are more dedicated to it long term. For example in a web design group I’m in, someone in response to a post about California AB5 said (I’m paraphrasing) “I just do this on occasion, I can leave it at any time since I don’t need the income”. This person might be a fantastic designer, I don’t know. But most of my clients are not just 1 off transactions. It is my full time business, and a passion. There’s so much to learn – so much constantly changes – from Google Search, WordPress, various tools, trends, fads, security, etc. I don’t know how someone could keep up with it all if it’s not their main business. If CA AB5 whittles out those not taking their craft seriously, then that’s a positive for those of us that do – and those that are looking to hire us.
All this was a blur, please summarize…
Ha, I get that!
The short version:
If you have a side gig, don’t treat it like a side gig, treat it as a business, even if it’s only a few hours a week.
If you’re looking to hire someone even for a one off project, make sure they’re a legitimate business – or you may be required to hire them as an employee. This is where things get murky, but it’s always the person doing the hiring that’s at risk.
For further info:
The SBDC, especially the Valley Sierra SBDC is an amazing resource for all business owners. Their workshops are usually free and very helpful. (I have not attended the workshop on CA AB5 – yet)
This is the State of California’s website on all things related to AB5. Lots or resources for employees, independent contractors and the hiring party.
I took this workshop last month and it was so helpful – there were two sections, one for the Independent Contractor, and one for the Hiring business. While it’s taught by a lawyer, it doesn’t sound like it is. There are clear examples in easy to understand language.
The date of the next workshop has not been announced yet, but there will be another in the near future.