You may want to do this because it makes business sense for you, Or you may NEED to do this because of AB5
Nothing I write should EVER be construed as legal advice. But here are the steps I am personally taking to avoid being told that I can’t consult on a project because of the restrictions in California AB5.
What is AB5?
AB5 is a law that took effect in California Jan 1, 2020. It was originally intended to force major gig economy companies (Uber, Postmates, etc.) to meet minimum wage and unemployment laws by re-categorizing as employees the individuals that the gig companies claimed were subcontractors.
However, when the unions and special interest groups got done lobbying the California legislature, AB5 ended up being a whole lot more complicated than that. A whole crazy-quilt of professions including photographers, authors, truck drivers and many other groups not traditionally considered gig workers could all potentially be impacted. And that re-categorization likely impacts (as of the date of this article’s publication) some accessibility test contractors.
Who is impacted?
If you reside in California, or a company you work with resides in California, this could end up being a serious problem IF you have contracted with the company as an individual and not as a genuine business. No one is “grandfathered in”, so it doesn’t matter if you have a business relationship that pre-exists the AB5 effective date of 1/1/2020.
The state intended for the corporate response to AB5 be that contractors would be converted into employees. However, hundreds of contractors have already been cut by corporations in response to AB5.
What is the employee/contractor test under AB5?
There is a three-prong test to whether AB5 applies to you. You must be:
- Free to perform services without the control or direction of the hiring company.
- Performing work tasks that are outside the usual course of the hiring company’s business activities.
- Customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
If the answer to any of these questions is no, you may need to be an employee and not a contractor in order to provide any work to the hiring company. There are several categories of occupations (physicians, accountants, etc.) that are largely very high skilled professions requiring licensing which are explicitly exempt from AB5. Because accessibility testing does not require state licensing, it is not exempt from AB5 analysis.
Is there a way around AB5?
The whole point of AB5 was to protect low-paid gig workers who were effectively employees though categorized as subcontractors without the rights or benefits of being employees. If you are an accessibility tester making $50–$100 (or more) per hour, it is less likely that you being taken advantage of. And you should have the resources and ability to undertake the requirements necessary to qualify for the exemption
Other than waiting for the California legislature or courts to see AB5 as-implemented for the horrific mistake that it is, the only way around this if you are told “we can’t use you because of AB5 prohibitions” is to:
- set up a bona fide (which means genuine or real) business, and
- have a business-to-business relationship with your clients rather than subcontracting with them as an individual or as a “business” that really isn’t bona fide.
OK, tell me what I need to do
Unfortunately, there is no TL; DR version of this article. Establishing a bona fide business requires many issues to be inspected and addressed. You should:
- Have a legitimate business entity that is customarily engaged in performing accessibility testing or disability related services, and advertise yourself to the public as available to provide those services. There are several different types of business entities including sole proprietorship, partnership, LLC, or corporation. Once you decide what type of business entity works best for your financial and legal situation, you need to look at the ground rules and guidelines for establishing that type business (fictitious business name filing, process server, bank accounts, insurance, web presence, trademarks etc.) and make sure you keep the business in good standing with your state government. If you are in the US, I strongly recommend getting a Nolo Press book which will give you a punch list on setting up your business for your state.
- Have all required business licenses and tax registrations. This ranges from easy to really complicated depending on whether you are located in an area that has no requirements (I am fortunate enough to be located in unincorporated Santa Clara County) or are in an area that has strict home office licensing rules (San Francisco). Business licenses can get messy when you rent rather than own the location, and are in a location that requires approval from your landlord to get a business license. You can consider paying a business that provides PO boxes to give you an official business address separate from your residence if this is an issue for you.
- Have a written contract with each hiring firm you are doing work for where you have negotiated your payment rate. This one is going to be trouble for crowd sourcing and bug bounty types of programs where the same rates are set for everyone and are not typically negotiable. It may also be a problem for Medium since bloggers have legal protection as journalists, and journalists are restricted to 35 articles a year before they have to be employees. I wrote more than 100 last year. If I disappear off Medium, you can find me at sheribyrnehaber.com
- Be free from the hiring firm’s control and direction while performing the work. This should be set forth in the contract and be true in fact, not just words in a contract.
- Provide services directly to the contracting business rather than to customers of the contracting business. This requirement prevents you from going through a contracting agency to satisfy AB5.
- Maintain a business location separate from the business or work location of the hiring firm where consistent with the nature of the work, you can set your own hours and location. The business location can be your residence, but see comments in #2 above. You don’t want to breach a residential rental agreement with your landlord by setting up a business there. But honestly, most landlords don’t have an issue with people working out of there homes where there are no substantial customer visits or inventory (i.e. no higher traffic, no likely neighbor complaints)
- Actually contract with other businesses to provide the same or similar services and maintain a clientele without restrictions from the hiring firm. That means your relationship with the hiring firm cannot be an exclusive one, and you need to be at least attempting to get other clients.
- Provide your own tools, vehicles, and equipment to perform the services. This could get interesting if you are using expensive software that the hiring firm has licensed to run automated accessibility tests for example, which you are interpreting.