Are you hiring independent contractors for your field service business? Then you should learn about California Assembly Bill 2257.
Staying current with the latest regulations is a must for any business owner. However, juggling a thousand things on a regular basis may keep you from learning all the important stuff as a field service company owner. To help you in this regard, we have compiled a comprehensive guide on the latest changes made to California Assembly Bill 2257. As a field service business owner, this is not only important for complying with the regulations but also for avoiding hefty financial penalties.
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The regulatory landscape, especially in industries reliant on field service operations, is subject to frequent changes and updates. These changes may encompass areas such as labor laws, safety standards, environmental regulations, and industry-specific requirements. Failing to stay informed and adapt to these alterations can expose companies to legal liabilities, fines, and reputational damage.
Staying abreast of the latest regulations and laws is crucial for field service companies to ensure legal compliance, mitigate risks, and uphold ethical business practices. Additionally, compliance with regulations ensures that field service companies prioritize the well-being of their workers, maintain a fair and transparent business environment, and contribute to the overall sustainability of their operations.
This is why field service organizations should be aware of the latest changes made to the former AB5 law, currently known as California Assembly Bill 2257. Read on to learn more about this.
What is an Assembly Bill?
Before we proceed to elaborate on the changes made to AB 5, let’s learn about the basics—what is an assembly bill?
In the United States, an Assembly Bill is a legislative proposal introduced in a state assembly or lower chamber of a state legislature. State assemblies, such as the California State Assembly or the New York State Assembly, play a role in the legislative process, and Assembly Bills are one of the primary means by which lawmakers propose new laws or amendments to existing ones. Before the assembly’s members vote on an assembly bill, it first goes through a series of hearings, discussions, and committee reviews. If a bill successfully passes both chambers of the state legislature and receives the governor’s approval, it becomes law and is integrated into the state’s legal code. Each state may have its own specific procedures and nomenclature for legislative bills, and the term “assembly bill” is commonly used in states where the lower house is referred to as an assembly, such as California.
California Assembly Bill 2257: Background
California Assembly Bill 2257 (AB 2257) was a piece of legislation that became law in California. It was enacted to address concerns and make amendments to Assembly Bill 5 (AB 5), which sought to clarify the classification of workers as employees or independent contractors.
Formerly enacted as Assembly Bill 5, this California bill was The bill was signed into law by Governor Gavin Newsom and went into effect on January 1, 2020. It was essentially a piece of legislation that aimed to address issues related to worker classification, specifically distinguishing between employees and independent contractors.
With Assembly Bill 5, California government introduced a strict criterion to determine a worker’s employment status. Known as the ABC test, this rule suggests that a worker is considered an employee unless the hiring entity can prove all three of the following criteria:
- A: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- B: The worker performs work that is outside the usual course of the hiring entity’s business.
- C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
This test was intended to make it more difficult for businesses to classify workers as independent contractors, ensuring that workers in certain industries would be entitled to employment benefits, protections, and rights.
AB 5 primarily targeted gig economy companies, such as Uber and Lyft, which relied heavily on independent contractors. However, it had wide-ranging implications across various professions and industries. The bill faced both support and criticism, with supporters arguing that it protected workers’ rights and opponents claiming that it adversely affected the flexibility and independence of certain freelance and gig workers.
When AB5 passed in 2020, it codified and built on the Dynamex ruling of the California Supreme Court from 2018. In 2004, Dynamex, a countrywide same-day delivery service, switched all of its drivers from employees to independent contractors, prompting a former employee to file legal action. The Court adopted a criterion that presumes all workers are employees, not contractors, and placed the burden on employers to demonstrate the propriety of classifying an individual as an independent contractor using the newly adopted “ABC” test.
According to AB5, classification as an independent contractor or employee impacts the applicability of labor regulations, such as minimum wage, overtime pay, and workers’ compensation. States and localities will be able to sue firms for misclassification, overturning present arbitration agreements.
AB5 also establishes a complicated list of professions and industries exempt from the law, including attorneys and certain salespeople. If specific conditions are met, the employment status of independent contractors working in an occupation protected by one of the exemptions will be assessed by the common law employment test( ABC test), sometimes known as the “Borello” test.
However, the exemptions specified in AB5 have sparked significant debate and misunderstanding, prompting many firms and employees to seek greater clarification.
Under AB 5 (and now its replacement, AB 2257), the default is the ABC Test, which is extremely difficult to meet. The ABC Test is difficult in part because each element (A, B, and C) must be proven; otherwise, the person is classified as an employee rather than an independent contractor. Borello, on the other hand, uses a “totality of the circumstances,” multi-factor approach.
In response, as of February of this year, the Legislature introduced 34 stand-alone laws exempting specific industries, the majority of which have been incorporated into the revised AB2257.
What is California Assembly Bill 2257?
With the amendments in force, the passage of the California Assembly Bill means that all company employees are considered workers eligible to receive W-2s. That is unless a company can prove that certain individuals can be classified as independent contractors, according to the ABC test in the state.
Under Assembly Bill 2257, the “ABC” test remains the default requirement for classifying independent contractors as employees. While AB2257 preserves AB5’s core foundation, it introduces a number of new statutory exemptions from the “ABC” test, which apply retrospectively where relevant, as well as revisions to existing exemptions. The approval of this new rule comes after several corporations in the now-exempt industry engaged in intense lobbying and public relations campaigns. Here are the major amendments adopted under AB2257:
- Business-To-Business Exemption
AB2257 maintains the exemption for “bona fide business-to-business contracting relationships” where a contractor acts as a sole proprietor, partnership, limited liability company, or corporation to provide services to another business. However, the exemption now also applies when a “public agency or quasi-public corporation” hires a contractor.
Under this exemption, a worker must still meet the 12 specific conditions, all of which must be met, no matter how minor they may be. As a result, many business-to-business independent contractor arrangements may be unable to benefit from this exemption simply because they cannot meet one of the standards.
- “Single-Engagement” Business-To-Business Exemption
AB2257 exempts individual businesspersons who contract with one another “for the purposes of providing services at the location of a single-engagement event.” If specific conditions are met, the “ABC” test does not apply when one person contracts with another to perform services at “a stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week..
- Referral Agency Exemption
AB2257 further clarifies the reference agency exception, which allows firms to refer an individual’s services to clients in particular industries while being excluded from the “ABC” test.
First, AB2257 considerably broadens the referral agency exemption to include other services subject to the “Borello” test, such as advising, youth sports coaching, caddying, wedding or event planning, wedding and event vendor services, and interpretation services. This enlargement was one of the most significant changes to AB2257.
At the same time, AB2257 explicitly indicates that the referral agency exemption is not accessible to independent contractors offering services in high hazard industries, including those identified by two state agencies, as well as eleven more businesses such as janitorial, delivery, courier, transportation, trucking, agricultural work, retail, logging, in-home care, and construction services (except modest house repairs).
Second, the ten specific requirements that referral agencies have to complete to qualify for the exemption have been expanded to eleven conditions.
- Professional Services Exemption
AB2257 adds to the already extensive list of occupations eligible for an exemption from the “ABC” test under the professional services exemption. As a result of AB2257, the “Borello” test for employment may apply to the following new occupations: content contributors, advisors, producers, narrators, or cartographers for certain publications; specialized performers hired to teach a class for no more than a week; appraisers; registered professional foresters; and home inspectors.
AB2257 also repeals the prohibitions outlined in AB5 that harmed the journalism business. Under AB5, the number of “submissions” that independent contractors of various types could publish in a single forum without losing their contractor status was limited. Now, AB2257 eliminates the submission cap and just requires firms to avoid displacing current employees in order to use one of these categories of contractors.
- Music Industry and Performer Exemptions
AB2257 creates several exemptions for the entertainment industry, primarily in the music industry.
- Miscellaneous Exemptions
Subject to certain requirements, AB2257 adds exemptions for the following occupations:
- Manufactured housing salespersons
- Certain individuals engaged by international exchange visitor programs
- Competition judges (including amateur umpires and referees)
Do’s and Don’ts for Navigating the Regulatory Changes in AB2257
If you are a service business owner and hire independent contractors to work on your behalf, the changes made to California Assembly Bill 2257 concern your business as well. Therefore, you must make sure you satisfy all the criteria as prescribed in the ABC test while hiring independent contractors. Furthermore, you should keep certain aspects in mind while posting a job for independent contractors. Such as:
- Don’ts
- DON’T post assignments that are 40+ hours per week with set hours
- DON’T post long-term assignments that last consecutive weeks or months
- DON’T require providers to work exclusively with you without the ability to do other work
- DON’T provide training on how to do a job in its entirety
- DON’T provide all the tools necessary to complete the job
- Do’s
- DO specify a clear beginning and end date for any project.
- DO have a well-defined scope of work for any contract assignment.
- DO pay contractors on time and offer a fair and competitive rate.
Staying aware of the latest regulations allows field service companies to adapt proactively to shifting market dynamics and emerging trends. Compliance with evolving laws not only safeguards a company’s legal standing but also positions it strategically within the industry. Adhering to updated regulations often reflects positively on a company’s reputation, fostering trust among clients, partners, and the broader community. Being proactive in understanding and implementing the latest regulations also enables companies to incorporate best practices, enhance operational efficiency, and maintain a competitive edge in an ever-changing business environment. In essence, staying well-informed about regulations is an integral aspect of responsible corporate governance that contributes to long-term sustainability and success in the field service industry.
To keep up with the requirements, this blog has tried to provide a comprehensive overview of the latest California Assembly Bill 2257. We hope this helps you navigate the changing market trends and legal compliances, ensuring the sustainability of your business.
Keeping up with constant changes in the regulations, however, could be a challenge. Even if the management is aware of the evolving laws, it can be difficult to make sure all the employees, especially those working in the field and coming into direct contact with the customers, comply with all the legal requirements. In this regard, Field Promax could be your biggest asset.
Field Promax field service software plays a pivotal role in helping service companies maintain regulatory compliance across various departments. With its comprehensive features, the software ensures that companies can effortlessly track and adhere to evolving regulations in areas such as labor, safety, and industry-specific requirements. The platform facilitates efficient workforce management, ensuring that field service teams are appropriately trained, scheduled, and equipped to meet regulatory standards. Additionally, Field Promax assists in document management, enabling companies to store and organize essential compliance documents, certifications, and reports in a centralized and easily accessible location.
By automating and streamlining processes, the software reduces the risk of human error in compliance-related tasks, ensuring that service companies can navigate regulatory challenges seamlessly while focusing on delivering high-quality services to their clients.
If compliance is a concern for your organization, try Field Promax to make the most of your resources.
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