What is Assembly Bill 5 in California?
Assembly Bill 5 in California (AB5) is a state employment law that redesigns the business determination of whether workers are employees or independent contractors. Signed into law in the year 2020, AB5 uses the ABC Test to assume that the worker is an employee unless the business can prove that they pass particular tests.
Under the ABC Test, a worker is presumed to be an employee unless the hiring business can prove all three of the following conditions:
- A: The worker is free from the control and direction of the hiring entity in performing the work, both under the contract and in practice.
- B: The work performed is outside the usual course of the hiring entity’s business.
- C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
If the business fails to meet any one of these conditions, the worker must be classified as an employee under AB5. This classification affects access to employee benefits, wage protections, and tax reporting obligations.
AB5 applies to firms that hire freelancers, gig economy workers, and contractors for hire, particularly those involved in transportation, deliveries, and creative occupations. Firms that improperly classify employees under AB5 can be fined, can be liable for taxes owed, and can be sued.
To stay up to date with Assembly Bill 5 in California, it is required to review contractors' contracts and determine whether exemptions can be applicable to the business strategy.
For general guidance on business structuring and documentation in California, One IBC USA offers professional support.
Disclaimer: One IBC USA does not provide legal advice regarding AB5 compliance or worker classification. For matters involving legal interpretation of California employment law, please consult a licensed attorney or labor law specialist.
