Philip L. Liberatore, CPA Responds to New Law Effective January 2020, California AB5
Philip L. Liberatore, CPA provides his insightful thoughts on the passing of AB5 in California. (https://www.latimes.com/california/story/2019-09-22/skelton-ab5-employment-law-independent-contractors-gig-economy).
LA MIRADA, Calif., Oct. 23, 2019 /PRNewswire-PRWeb/ -- If you haven't been keeping up with California Bill Assembly Bill 5, also referred to as AB5, here is what you need to know. Gov. Gavin Newsom signed this controversial bill last month after several months of backlash received from businesses and gig companies like Uber and Lyft. This law will require business to hire workers as employees and not as independent contractors, with some exceptions to certain professional fields.
Contract employees might get the opportunity to receive labor protections and benefits that all normal employees get, such as unemployment, healthcare and paid leave, just to name a few.
On the other hand, this will force companies to take on these extra costs and make it more difficult for them to hire contract workers.
AB 5 instructs businesses to use the ABC test to determine whether a worker is an employee. An independent contractor must fit the criteria of, A) Completely free from the company's control, B) Doing work that isn't central to the company's business, and C) Contractor has an independent business in the industry. If the worker does not meet all three, then they must be classified as an employee.
Professions that were excluded from this law include: doctors, lawyers, dentists, architects, insurance agents, accountants, engineers, financial advisors, realtors and hairstylists.
So what does this mean for contractors and freelance workers like court reporters, truck drivers, and people in the entertainment industry? Philip L. Liberatore, CPA suggests, "With the passage of AB 5, California is taking away your independent contractor status. This means that you must become an employee of your agency (ies) and you cannot write off any of your business expenses. This leaves you with little options in California except to incorporate."
California Bill AB 5 will go into effect on January 1, 2020 and there's no doubt that AB 5 will have a significant impact in California. Certainly, fear of non-compliance is justified, but there are some proactive steps to take.
Establishing an arm's length, business-to-business relationship with independent contractors is one of the most important steps you can take to stay compliant, no matter what state you're in.
"There is a lot of tax-savings potential when you incorporate. It's by far one of the best tax decisions you can make that will have potentially have a significant impact on your taxes. Don't be a victim of tax law changes – be proactive and get in front of the issues before they become problems."
SOURCE Philip L. Liberatore CPA
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