Time to Change Your Practices if You Are an Independent Contractor in California, or If You Employ Anyone in California as an Independent Contractor

By Pantea I. Fozouni

February 10, 2020

California Independent Contractor

If you are an Independent Contractor in California, or you have any team members in California that you have hired as an Independent Contractor, you must contact us immediately to discuss your options.

You can read the summary of AB5 on Wikipedia, including legal challenges to the law. And, you can read the FAQ from the California Labor Department website here

But, in practical terms, what should you do? Contact us so we can discuss the specific impact on your business, the risks to you of continuing to operate as an independent contractor in California or work with independent contractors in California, and let’s see how we can get creative about your options.

The simplest, most straightforward path is to convert all independent contractors you work with in California to employees. This can be a costly solution because it means you will take on the cost of payroll taxes, worker’s compensation insurance, and more to the tune of a 30-40% increase in costs over what you pay independent contractors right now. 

If it is not currently financially possible for you to switch your independent contractors in California to employees, it may be time to look at some workarounds. Unfortunately, no workaround is going to be cost-free. But, together we can look at possibilities short of firing all of your California independent contractors, to minimize the risk that you are violating any of the California Wage and Labor laws.

If you are an independent contractor in California, there are some steps you can take immediately to bolster your position as an independent contractor. To begin with, you should incorporate your business as an LLC or an S-Corporation. Yes, this will cost you $800 a year minimum in franchise taxes paid to California, but this could be a small price to pay for keeping your jobs. In addition, you should take on multiple clients, start advertising your business, and have a clear contract with each of the companies you work with that states you are an independent contractor and will handle all of your own insurance and taxes.

The biggest problem we see with AB5, and its applicability to you, as either an independent contractor or a business owner who hires independent contractors, is the lack of clarity and confusion in the law and it’s exceptions. We anticipate years of court battles playing out as we all try to figure out what it means and how it applies.

In the meantime, you need to do the best you can to apply cost/benefit analysis in your business, and your life, to make the wisest, least risk decisions about how to handle AB5, and that’s where we come in. If you are impacted by AB5, either as a CA independent contractor, or as a business owner who hires independent contractors in CA, contact us today.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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