Will AB5 Become a National Trend?

Wendy Walker
February 5, 2020

California’s Assembly Bill 5 (AB5) has sparked a national trend towards increased regulations on the gig economy. New York, New Jersey and Illinois have followed California’s lead, attempting to pass their own versions of AB5.

What is AB5?

Triggered by the landmark Dynamex ruling, California’s AB5 requires businesses that hire gig workers to treat those workers as employees rather than independent contractors. This includes increased worker protections, wages and benefits. The law went into effect in California on January 1, 2020. And California’s budget includes $20 million to uphold the law, including support for investigations of labor law violations and worker’s compensation claims. 

The impact on your business

Entrepreneur John Chuang believes New York’s legislation is needed to “address the ambiguity in New York labor laws when it comes to classifying W-2 employees and independent contractors.” 

California’s AB5 addressed this ambiguity with a three part “ABC test” to determine whether a worker is a W-2 employee or an independent contractor. The test determines a worker’s status on the following three points:

  • (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and 
  • (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and 
  • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Using this ABC test, a California company can classify any worker who satisfies all three requirements as a contractor rather than an employee.

Any law enacted that is similar to AB5 will likely force your business to pay more in employer payroll taxes and provide more employee protections and benefits. This also means your business may need to file more W-2s and fewer 1099-Ks. 

Take Action

Find out how Sovos can help your business comply with evolving gig economy reporting requirements.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
Share This Post

Asia Pacific E-Invoicing Compliance VAT & Fiscal Reporting
February 13, 2020
Vietnam Makes E-Invoicing Mandatory

Whilst Vietnam has allowed the issue of electronic invoices since 2011, this has not proved popular with domestic businesses.  This is mainly due to the lack of an efficient framework for commercial processes and the technical capabilities required to issue e-invoices compliantly. During the last decade, the Vietnamese government has developed a more robust legal […]

EMEA VAT & Fiscal Reporting
February 13, 2020
Hungary Amends VAT Act – Real-Time Reporting Affects All

The Hungarian Ministry of Finance had a productive end to the decade. As outlined in an earlier article, the MoF announced a package of measures and proposals as part of its Economic Action Plan for 2020.  The aim of the plan is to improve VAT compliance and reduce fraud.  A bill to amend the laws […]

ShipCompliant United States
February 13, 2020
The Evolution of a More Competitive DtC Market

When I joined Wines & Vines magazine in 2011, I received an in-depth introduction to the world of direct-to-consumer wine shipments through the magazine’s collaboration with ShipCompliant. Back then the channel still seemed new, relatively novel, and while sales were strong in a few key markets, the overall growth of the segment was hobbled by […]

EMEA Tax Compliance VAT & Fiscal Reporting
February 12, 2020
ECOFIN Speaks on EU VAT Reforms

Pivotal projects in the development of EU VAT The EU’s Economic and Financial Affairs Council (“ECOFIN”) issued a report in December. This followed its review of EU tax policies and developments since Finland took over Presidency of the Council of the European Union in July 2019.  In a previous article we summarised their status review […]

Asia Pacific E-Invoicing Compliance EMEA LATAM United States VAT & Fiscal Reporting
February 12, 2020
What Is Value-Added Tax, Anyway? Trends Report Excerpt

Value-added tax (VAT) does not exist in the United States, but American companies are increasingly having to deal with VAT mandates in Latin America, Europe and Asia. Seeking to make up a massive gap in revenues, tax administrations are mandating strict policies to digitize VAT collection. American companies that fail to comply could see their […]