Did you know that about 57 million freelancers are working independently in the US today? That makes up almost 35% percent of the entire US economy.
In case you’re wondering what is causing the current upheavals by Uber and Lyft employees in California demanding an amendment of the new AB5 law, these statistics tell us why.
Working independently has become a go-to option for Americans looking for part-time jobs, or even some flexibility while making a living. However, a freelancer is also self-dependent when it comes to benefits like insurance and retirement planning.
To help protect the rights of freelance workers, California enforced the AB5 law, which came into effect on 1st Jan 2020. The law draws a definite line between freelancers and full-time employees.
Don’t worry, here’s everything you need to know about California freelance laws. We have made them simpler for you.
What’s All the Fuss About?
We know what you might be thinking. The law intends to protect the rights of freelancers across the state, why the protests and cries for amendments? We hate to admit it, but while the law comes from a good place, it’s more trouble for freelancers than not.
Why? Mainly because it forces employers into giving freelancers the rights they deserve. These include minimum wage protection and other workers’ rights. Unfortunately, it has ended up doing the opposite.
Following the law, employers are simply getting rid of freelancers who they might have to classify as full-time employees. The results are disastrous. For example, Vox Media broke ties with hundreds of freelance journalists because they couldn’t comply with the new law.
Besides that, it’s becoming harder for freelancers from California to find work globally, as employers choose to avoid them altogether.
But wait. That doesn’t mean you cannot work as a freelancer at all. Here’s a list of the key clauses to remember from the California freelance laws, so you can continue pursuing your career while complying with the law.
The Three-Part Test
The AB5 mandates a three-part test(ABC test) that determines whether a particular employee can be considered an independent contractor.
If the freelancer does not match any of the three clauses, the employer has to add his name to his regular payroll, along with all the essential benefits.
- The freelancer completes his services without any strict control of the company
- The tasks he takes up should not be from the company’s everyday core activities
- The freelancer should be engaged independently in the same occupation he takes up for the company
Meeting all three clauses is quite tricky, with a steady workflow. For example, if you’re writing blogs as a freelancer for a cosmetic company, that can be considered outside the regular course of activities.
However, if the organization you write for is a magazine or general publication, writing articles is considered from the necessary course of activities in the company. Therefore, your employers will not be able to treat you as an external freelance worker.
Yearly Work Limitations
As a creative freelancer such as a writer or designer, you can only complete less than 35 projects per year. This is the benchmark to be considered as a freelance worker.
Look at it this way. You’ll only get a freelance worker status in California if you complete 25 jobs for company A and 25 jobs for company B. You can go on with this until you reach the 36th job for any of the companies.
Exceeding this limitation will force your employer to count you in the employee classification and add you to their payroll. In this case, you might get hired permanently, or your employer will have no choice but to stop giving you any further work.
Yeah, that sounds frustrating, right? There’s no way a freelancer generating a steady income can limit himself to 35 submissions per client in a year.
But there’s more. Companies all over the world have to comply with this clause if they’re working with California-based workers. This means whoever you work for if you live in California, cannot escape the law. Even if you use a platform like Upwork or Fiverr.
Business Exemption Loophole
With all the upheavals and protests, the Californian government is looking to amend the 35-submission limit. Still, freelancers argue that the limitation currently threatens their livelihood.
But, here’s a scoop. The AB5 also mandates a business-to-business exemption. So, you can register yourself as a company and complete uncapped projects for your clients.
However, freelancers will have to show themselves as legitimate businesses to bypass the law. This means having a legal business license, tax permit, separate equipment, and different work locations from their clients.
Freelancers all over California fear for their jobs since the AB5. But, the law states that some occupations don’t have to worry about complying with this law at all. These include doctors, lawyers, real estate agents, grant writers, tutors, architects, and truck drivers.
Freelancers from these modes of occupation are exempted from AB5.
The AB5 intends to keep employers from avoiding taxes and provide deserving workers with legit employee status. This way, they’re forced to give their workers healthcare, compensation, paid leaves, and other employee rights.
Despite the good intentions, this law makes it difficult for freelancers in California to get hired.
There’s hope for further tweaks and amendments in the law. Until then, as a freelancer in California, you should map out all the possibilities with your clients before agreeing to work with them. Good Luck!