HR guidance on independent contractors and AB 5

There are many questions about a new law, Labor Code Section 2750.3 (also known as Assembly Bill 5 (AB 5) that went into effect on 1-1-20.  The new law creates a presumption that all individuals working for a business are its employees. It greatly restricts who can be treated as an independent contractor. A worker is considered an employee, and not an independent contractor, unless the hiring entity can demonstrate that it meets all three of the following requirements:
 

1. The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
2. The individual performs work that is outside the usual course of the hiring entity’s business.
3. The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

These requirements, known as the ABC test, must all be met in order for an individual to qualify as an independent contractor.  

As applied to parishes and schools, the following is provided as guidance for several; common situations:  

Musicians, Cantors:  Musicians and cantors are unlikely to meet the ABC test because of the degree of control and direction exercised by the parish over their services. While there is a professional services exception in the new law for “fine artists” but the law as enacted does not clarify if this includes musicians or cantors. To assure legal compliance, you should treat all musicians and cantors as part-time employees, with tax withholding. As part-time employees, they should be completing timesheets that reflect all preparation and performance time. The timesheets should indicate their hourly rate of pay, and the timesheets should be signed. In the unlikely event any musician or canter worked more than 8 hours a day, or 40 hours a week, they would need to be paid overtime. In the unlikely event they work more four or more consecutive hours, they would be entitled to a paid 15 minute rest break. In the unlikely event they worked more than five hours, they must receive an uninterrupted, unpaid 30 minute meal break.

            Janitorial Services; Landscapers and Gardeners:  There is a “business to business” exception in the new law. The business to business service provider can be a sole proprietorship, partnership, or corporation. However, to meet the criteria of independent contractor, that business service provider must:

• Have a signed, written contract with the parish or school;
• Have a business license or business tax registration, if that is required in the city or county where the parish or school is located;
• Have contracts with and provide services to other business (including other parishes or schools)
• Maintain a business location separate from the parish or school
• Have its own work, equipment and tools to provide the services
• Negotiate its own rates, hours of work

In addition, it is Diocesan requirement that such businesses maintain current general liability and worker’s compensation insurance when performing work for our parishes or schools. Written evidence of such insurance (such as a certificate of insurance) must be obtained by the parish/school.

            Misclassifying an employee, willfully or otherwise, is considered a violation of this law.  Penalties for wage violations, among others, can be assessed.  If you have questions whether any of your workers should be classified an employee or independent contractor, please contact the Department of Human Resources at 510-267-8359 or 510-267-8363.  You may also go to www.labor.ca.gov/employmentstatus for more information.