In September 2019, Governor Gavin Newsom signed California Assembly Bill 5 (AB5), which took effect on January 1, 2020. The new regulation may very well impact how you hire freelancers this year.
If you are used to finding developers, copywriters and public relations experts to augment your in-house communication, the way you hire freelancers may be changing. With the passing of this law, New York-based media company Vox Media had to let go of 200 California-based writers right before the holidays. Further, Upwork has encouraged the enrollment of talent in its Upwork Payroll program and offered assistance to businesses that hire through the platform as they navigate the changes.
What is Assembly Bill 5 — California’s gig-economy bill?
The purpose of AB5 is to define and more clearly classify independent contractors. Many hoped that this bill would encourage fair pay and access to benefits for gig economy workers. Primarily, Uber and Lyft drivers were said to be the main beneficiaries and have been the focus of the conversation. While drivers for ride-hailing apps are impacted, the law is already affecting many other professionals.
More than one-third of all Americans are a part of the gig economy, and that number is only growing. That includes individuals driving for Uber, playing music, and supporting marketing and communications efforts.
At Boon, I often need to quickly expand my in-house team’s capabilities when it comes to marketing. If we need a quick-and-dirty design, extra help on a big project or specialty video production, we often turn to hire a freelancer, and I’ve found gig platforms like Upwork and Fiverr to be a great source of talent. While the implications of AB5 are likely to impact companies’ relationships with talent in California on platforms like Upwork and Fiverr — for instance, ensuring they’re enrolled in Upwork Payroll — companies will need to continue to research the bill’s implications as more details unfold. And for companies that hire freelancers directly, there are now legal concerns to consider to ensure these new rules are followed.
How does AB5 impact me?
Whether or not your business is located in California, the new bill could still impact you and your team. If you work with any contractors who reside or work in California, you may now need to add them as employees instead of working with them as independent contractors (who receive 1099 tax forms).
According to the bill, a worker must be classified as an employee unless the following three conditions are met: “A) The person 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. B) The person performs work that is outside the usual course of the hiring entity’s business. C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
While there are some exemptions to this rule, and details are still emerging, whether you hire freelancers directly or via a third-party talent sourcing platform, adhering to the following best practices can help keep your business out of legal trouble.
• Know how to classify your freelancer. Even if your freelancer is not in California, it is important to know whether or not to classify the individual as an independent contractor or employee. The nuances of each can have massive implications for you and your business. Ultimately, you will need to speak with your tax advisors and legal counsel for guidance.
• Develop a clear scope. Scope creep impacts all of us. When hiring a freelancer, this can be one of the most frustrating situations. Like any good idea, it starts out as a seedling and, often, gets roots and expands out of control. When hiring a freelancer in 2020, be sure to have clear deliverables, milestones and a completion date defined to more effectively manage your freelance relationship.
• Communicate early and often. On more than one occasion, I hired freelancers to design logos or write blog posts. I gave them high-level details and sent them off to the races. I then got the notification that the milestone had been met, only to find out that they totally missed the mark. In most cases, it is advantageous to set a clear scope but then have frequent check-ins throughout the project to make sure you and your freelancer are aligned.
• Stay engaged with changing legislation. While there are pros and cons to any piece of legislation, it is important to stay up to date on how legal changes could impact the way in which you hire and retain contractors for your business. Continually monitor new parameters being placed around the gig economy so you know how to best leverage freelancers for your business.
Regardless of what state you are in, hiring a freelancer in 2020 comes with different considerations than in past years. More than likely, regulations on the gig economy will continue to evolve, as other states like New York and New Jersey are eyeing similar bills to AB5.
