California Assembly Bill 5 created statewide requirements for employers to reclassify independent contractors as employees. Forbes reports the AB5 bill, effective January 1, 2020, impacts 1 million California gig workers. AB5 could carry nationwide aftershocks and impact the future of work, especially if more states follow in California's footsteps.
What AB5 means for California contractors
The AB5 bill makes it much more difficult for employers to classify workers as independent contractors in California. Freelancers must be reclassified as employees unless they pass the ABC exemption test. Workers cannot freelance if:
- Work performed is under the company's control, or
- Work is integral to a company's business, or
- The worker doesn't operate an independent enterprise in their trade
There are limited exemptions to AB5 legislative requirements. Several dozen exempt professions, such as doctors, lawyers and real estate agents, can remain as contractors since they set their own rates, earn twice the minimum wage and communicate directly with customers, per Quartz. Also, media contractors can freelance for a publication if they publish 35 or fewer works yearly.
Will AB5 inspire nationwide gig worker laws?
A new legislative climate nationwide could challenge employers to rethink the gig economy. Former Labor Department official David Weil believes AB5 "will have major reverberations around the country," reports the New York Times.
New Jersey legislators are currently working to pass an employee classification bill similar to AB5 in early 2020, according to Fortune. Legislators in New York, Colorado, Oregon and Washington are also evaluating the idea.
An estimated 57 million Americans freelance, according to Upwork's "Freelancing in America" survey. 45% of gig workers are skilled knowledge workers with specialties such as IT, design or marketing. Laws similar to AB5 could impact millions nationwide.
It's time to prepare for a challenging compliance climate. New Jersey's pending contractor law could be slightly different from California's AB5. Future state-level requirements could continue to exacerbate the regulatory climate. "Companies [will] have to understand compliance as something that looks very different in each state, or [choose] which states they want to operate in," predicts Fortune.
Short-term ripples from the AB5 Bill
AB5 could have an immediate price tag. Employee benefits and related administration can increase labor costs by 30%, according to the San Francisco Chronicle. In addition to cost impact, AB5 preparations should include a renewed look at engagement, learning and talent strategy. AB5 should spark a new look at talent strategy and employee experience.
It's smart to proactively monitor the workplace satisfaction of reclassified contractors. Gig workers value schedule flexibility above all other benefits of freelancing, per Upwork. Providing flexible schedules and working arrangements to former freelancers could be crucial to engagement.
Learning and development are valuable change management tools for transitioning gig workers. Educational content can acclimate reclassified workers to company policies and show how to optimize employee benefits offerings. Use your learning management system to gather feedback from employees in transition and pinpoint at-risk talent.
Prepare for a post-freelance future
AB5 should inspire employers to consider a future of work that relies less on gig workers, especially if New Jersey and other states follow suit. In the future, employers may succeed based on their ability to create flexible talent solutions from their pool of employees. Creating the capacity for talent agility will be more important and complex in the future if freelancing diminishes. A culture of L&D that supports continuous employee reskilling and upskilling will be crucial to meeting evolving talent requirements.
