Can I Still Hire Freelancers? How New AB 5 Law Affects CA Businesses

Can I Still Hire Freelancers? How New AB 5 Law Affects CA Businesses

On Jan 1, 2020 Assembly Bill 5 (AB 5) went into effect in California affecting freelancers and companies alike. If you’re a small business like us, you might feel concerned and confused. While some small businesses are relocating to various states, we decided to stick around and start to understand what all of this means. After an informative meeting with an attorney, this is what we learned.

What is AB 5?

Essentially, AB 5 narrows the definition of a Freelance position, requiring businesses to provide more contract workers with employee benefits. According to the EDD (Employment Development Department, State of California), a person is now defined as an independent contractor if that individual:

  1. 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. Performs work that is outside the usual course of the hiring entity’s business.
  3. Is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Unless the hiring entity can demonstrate the independent contractor meets all three of these criteria, the worker is considered an employee and needs to be categorized appropriately. As of now, most companies aren’t yet sure exactly how this will play out.  

The media industry and large companies like Uber and Postmates are currently challenging AB 5 in court, which will help clarify these criteria once case law is established. But as of right now, AB 5 is here to stay; in fact, many other states are enacting similar legislation.

What do we do now?

How will this affect your creative freelancers?  It really depends how you use them. Here are some examples:

  1. You company need videos edited and hire a freelancer editor a few days a month.  The freelance editor gets the raw video files from you and on their own puts the story together.  You also know this freelance editor does editing work for other companies. And most importantly, your company has no employee video editors worldwide.  In this example, the freelance video editor is clearly an independent contractor.
  2. You hire a freelance video editor 40 hours a week to edit videos for your company.  You also give very specific direction on several of the videos and how you want them edited.  In this example, the freelance editor is almost exclusively working for you and is getting direction, the freelance video editor should be an employee.
  3. You have a Producer employee and you also hire a freelance Producer 10-20 hours a week to help with all the projects.  In this example, the freelance Producer should be a part-time employee since the company has an employee doing the same role.

I recommend if you are unsure, write out what your creative freelancer is doing and make sure it meets the EDD criteria. You may, of course, also seek legal council for further clarification. 

If you have creative projects on the horizon and aren’t sure how to proceed because of AB 5, I suggest hiring a creative agency. Hiring an agency that is an LLC or Corporation will remove any liability from your company in a lawsuit or state audit regarding AB 5. 

Do you have needs for full-time creative help but don’t have the employee capacity? An experienced creative agency can also serve as a consultant to help assure you are in compliance with AB 5.

If you want to continue the conversation, I am happy to discuss your situation. We would love to help you navigate these uncharted waters. You can learn more about Four Winds Creative here, and contact us here. Best of luck!