Does the New AB5 Law Affect You

What Is The New Assembly Bill 5 Law, & Will It Affect Your Business?

Calfornia Assembly Bill 5 – What Is It & Will It Affect Your Business?

Governor Gavin Newsom signed Assembly Bill 5 into law on September 18th, 2019 – and it went into effect on January 1, 2020.

Also known as the “gig worker bill,” this piece of legislation could have an impact on your business – especially if you hire independent contractors.

Don’t make the mistake of thinking this is only for people who drive for Uber or Lyft.

AB5 has the potential to impact practically all companies in the state of California that use independent contractors. AB5 requires businesses that hire independent contractors to reclassify them as employees, with a few exceptions.

We’ll discuss those exceptions in a minute, but first let’s define what exactly this means for businesses in California — and even some outside of the state.

AB5 expands on a ruling made in a case that reached the California Supreme Court in 2018, Dynamex Operations West, Inc. vs. Superior Court of Los Angeles.

Will The California Assembly Bill 5 (AB5) Affect Your Business?

AB5 entitles workers classified as employees to greater labor protections, such as minimum wage laws, sick leave, and unemployment and workers’ compensation benefits – which do not apply to independent contractors.

Concerns over employee misclassification, especially in the gig economy, drove support for the bill.

In the 2018 Dynamex case, the California Supreme Court ruled that companies must use a three-pronged test in determining whether to classify workers as employees or independent contractors.

This “ABC Test” – as it’s called – assumes that workers are employees unless the company that hires them can prove three things.

A worker can only be classified as an independent contractor if:

  1. The worker is free to perform services without the control or direction of the company.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Key Takeaways of AB5

California Assembly Bill 5 (AB5) extends employee classification status to gig workers.

Companies must use a three-pronged test to prove workers are independent contractors, not employees.

AB5 is designed to regulate companies that hire gig workers in large numbers, such as Uber, Lyft, and DoorDash.

Are Any Businesses or Industries Exempt from AB5?

Yes, over 50 professions or types of businesses are exempt from the bill. Exemptions include doctors, dentists, insurance agents, lawyers, accountants, real estate agents, hairstylists, and a variety of creative professionals.

However, AB5 also exempts business-to-business contractors that meet 12 specific requirements and referral agencies that meet 10 specific requirements.
For more information on AB5 exemptions, you can check out this website, and be sure to review the state of California’s website on the new law.

How Can You Get More Information on AB5?

The state has launched a new website with information, including a Frequently Asked Questions section to help business owners understand the ABC Test, AB5, and your obligations as an employer.


The website contains information from various state entities, including:

The Employment Development Department (EDD), which is your resource for information about your obligations as a taxpayer. EDD has created payroll tax-related resources and is preparing payroll tax seminars to provide guidance for employers.

The Department of Industrial Relations – Division of Labor Standards Enforcement (DLSE), which is your resource for information about wage and hour laws.

The Department of Industrial Relations – Division of Occupational Safety and Health (DOSH), which is your resource for more information about workplace health and safety laws.

The Department of Industrial Relations – Division of Workers’ Compensation (DWC), which is your resource for more information on your workers’ compensation obligations.

Carlsbad Bookkeeping & Accounting Services

Betty Moore is the numbers nerd behind Bottom Line Management.

Betty and her staff will save your business time and money by turning piles of receipts into complete financials with every penny accounted for.

Here at Bottom Line Management, we love keeping track of ALL the financial activity in your business, down to the penny!

This will help alleviate any financial problems and keep you in the know. We take pride in our clients and their companies so they can have peace of mind.

We let you focus on what you do best — running your own business.

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