For most hourly workers, the workweek entails a laid out plan of where exactly they’ll be as well as their exact shifts. But for independent contractors, things aren’t so straightforward. That’s because they can be working for a number of different businesses, filling a wide array of roles.
And while there has always been a strong need for independent contractors all across different industries, the rise of ride-sharing platforms like Uber and Lyft have permanently changed the landscape for hourly workers looking to replace their 9-to-5 with a “Gig” instead.
Uber and Lyft’s role in California’s AB-5
There’s a lot of people driving for Uber and Lyft, millions all across the globe actually. And although everyone gets into it for their own reasons, they can all agree a big motivator is due to the flexibility it offers. A driver for Lyft can work anywhere at any time they want. All they must do is turn their apps on and go. For this reason, you see many workers choosing to drive as a supplement for their income. But you’re seeing more and more drivers choosing to work with ride-sharing platforms full time. And to fix what California believes to be a misclassification issue for over 1 million workers in the state, they introduced a new piece of labor legislation referred to as AB-5.
What is AB-5?
California’s new AB-5 bill will work to change the classification of a number of workers from independent contractors to employees. Many believe the move was made in an effort to help contractors receive benefits commonly reserved for employees, examples of which include the minimum wage, unemployment benefits, overtime pay, as well as sick leave. While the bill has sent shockwaves throughout the country, it’s important to first understand the specifics behind who does and does not qualify as an independent contractor or employee.
Who constitutes as employees and/or independent contractors?
An easy way of differentiating employees from independent contractors is remembering that employees are paid by the hour, through commission, or have a predetermined salary. Along with that, employees are taxed based on their income and employers are expected to withhold both federal and state income taxes, as well as FICA taxes. Employers with Independent contractors, on the other hand, aren’t required to withhold any taxes from their income. The contractor is expected to pay those themselves, along with their self-employment taxes.
Which professions are excluded from AB-5?
A certain number of professions are also exempt from any impacts of the AB-5 bill. The legislation found that contractors working as cosmetologists, fishermen, real estate agents, lawyers, doctors, and others can continue business as usual. This means that ride-sharing drivers in California, the intended targets, will have to abide by the rules of AB-5. And while hourly workers wait to see how employers react to the news, business owners all across the state are figuring out how they’re going to keep up with the added cost.
Will ride-sharing, food service, or any other industry get added as an exemption?
Everyone will just have to wait and see if any other sectors get added to the list. In fact, nothing will happen until next year after lawmakers return to work from their fall breaks. So business owners should get in full control of their workforce now to ensure they’re ready for whatever comes their way. Along with that, many companies are just trying to figure out their next move.
How employers are reacting
When companies hire contractors, a big reason is that contractors save them money from having to hire a full-time employee. They don’t have to pay benefits, overtime, or the minimum wage to whoever they bring on. Employers can also limit the number of times they use contractors, ridding the need to schedule shifts on a regular basis. So when companies are put in a position where they’re expected to invest more financially, there’s always the chance of hiring halting or taking a large blow. Slowing down business for everyone involved.
The wider impact on hourly workforce
Ab-5 has strong ramifications for employers and will completely change how work is handled for years to come, but some may look at the bill and assume it’ll stay in California. In reality, California is often the first to pass major labor legislation that eventually spreads throughout the US to other major cities and/or states. A good example of which is Predictive Scheduling/Fair Workweek laws, which originated in San Francisco back in 2014. Since then, state and cities like New York, Chicago, Philadelphia, Seattle, Oregon, and many more have enacted their own Predictive Scheduling/Fair Workweek laws. So regardless of where they’re located, all business owners utilizing hourly and/or gig workers need to pay close attention to what’s going on in California, because their state may be next in line.
The future for ride-sharing drivers
Thankfully, customers don’t have to worry about their Instacart access being taken away any time soon. While there’s always a chance of the added cost of doing business holding some companies back, most major brands aren’t planning to let AB-5 impact their workflows in any major way for the time being. But if anything were to come from this, it would likely come in the form of greater restrictions on when and where Uber and Lyft drivers can work. For example, if Uber finds that it’s not profitable to allow drivers on the road before 9 am, then they may very well take away drivers’ ability to work in that specific timeframe. Which ends up hindering some of the flexibility that gig workers treasure so much in the first place.
Are hourly and gig workers happy that AB-5 passed?
This is tough to say, each person has their own individual goals and benefits they value. While some employees may be thrilled to know they’re at least getting a minimum wage to fall back on, others are hesitant to see their way of life disappear.
Either way, having your classification change is big news for many workers and they should stay on top of any major impact that AB-5 may have on their tax status or employment possibilities.
To keep up with all the news surrounding AB-5, be sure to keep up with the Nowsta blog regularly for any updates.
Closing thoughts on California’s AB-5
Workers need to be heard, and the bill works to bridge the gap for people struggling to get by without the benefits that come with full-time employment. That said, not everyone wants the bill to gain momentum and would prefer to keep worker classifications as is.
Either way, employers need to ensure their employees are classified as they should be and that they’re living up to their area’s laws.