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CA Assembly Bill 5 (AB 5) Update

As an employer in California, you should be aware of the new Assembly Bill 5 (“AB 5”) which creates a new “ABC” test to determine whether a worker in California is classified as an employee or as an independent contractor under the California Labor Code. AB 5 goes into effect on July 1, 2020 and pertains to policies issued on or after July 1, 2020, as well as policies in force as of July 1, 2020. AB 5 is not based on policy effective date.

If you have 1099 subcontractors, you should familiarize yourself with the AB 5 requirements to help mitigate potential impacts to your business and your workers’ compensation policy and premiums.

According to the “ABC” test, a worker must meet all the following conditions to be considered an independent contractor:

A: The individual is free from control and direction of the hiring entity in connection with the performance of work, both under the contract for the performance of the work and in fact.

B: The individual performs work that is outside the usual course of the hiring entity’s business.

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

You may also find California’s Labor & Workforce Development Agency site helpful, which includes an FAQ section on AB 5.

Please Note: To avoid any unexpected changes to your workers’ compensation coverage, it is important you make certain all payroll processed as of July 1, 2020 for all California employees meets the requirements defined by the “ABC” test.

Source: ADP

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