Assembly Bill 5 (AB5) is a law that affects how companies, both in-state and out-of-state, can classify workers as independent contractors throughout the state of California. Bringing significant changes to many industries, this law greatly affects the way employers conduct business. With worker misclassification suits gradually growing, we’re here to help you and your business navigate the complicated nature of AB5. Here is a breakdown of how AB5 affects graphic designers.
What is Assembly Bill 5 (AB5)?
Assembly Bill 5 (AB5) is a state law that codifies the “ABC” test, set forth in the Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) ruling, and has been in effect since January 1, 2020. The “ABC” test determines whether a worker is an employee as opposed to an independent contractor. It reclassifies millions of independent contractors as employees, meaning they are entitled to the same rights as all your other employees.
For the hiring entity to classify a worker as an independent contractor, it must demonstrate that all the following conditions of the test are satisfied:
- The person is free from the control and direction of the hiring entity in the performance of the work.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
A recent legislation, Assembly Bill 2257 (AB2257), amends certain sections of AB5, clarifying and adding new statutory exemptions from the test — which apply retroactively where applicable.
Graphic Designers are Exempt from AB5
Under AB5’s “Professional Services”, graphic designers are exempt from AB5 as they’re qualified by specific statutory references. Although many people likely have an idea of what the graphic design services are, how a court will analyze and interpret them under the new law remains an open question – since graphic design doesn’t have any qualifying or guiding language.
To fall under this exception, the hiring entity must establish that the graphic designer (contractor):
- Maintains a business location, which may include the individual’s residence, that’s separate from the hiring entity (but the individual may perform services at the hiring entity’s location)
- Has a business license and any required professional licenses or permits to practice in the profession if work is performed more than six months after this section’s effective date
- May set or negotiate their own rates for the services performed
- May set their own hours outside of project completion dates and reasonable business hours
- Customarily performs the same type of work under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work
- Customarily and regularly exercises discretion and independent judgment in performing the services.
This means that the independent contractor status of graphic designers will be governed by the Borello test, and not the “ABC” test.
Potential Liabilities for Misclassifying Your Graphic Designers
It must be stressed that there are potential liabilities for hiring entities that willfully misclassify their graphic designers. Willful misclassification is defined as voluntarily and knowingly misclassifying an employee as an independent contractor. Pursuant to Labor Code section 226.8, subdivision (a)(1), it is unlawful for an employer to willfully misclassify an individual as an independent contractor.
If an employer willfully misclassifies their graphic designer as an independent contractor, they will be subject to civil penalties of $5,000 to $15,000 per violation, in addition to other penalties that include unpaid income taxes, IRS code penalties, FICA (Social Security) & Medicare contributions, unpaid minimum wages & overtime wages, and more.
Employers seeking to take advantage of this exemption must exercise care and diligence in implementing an agreement and course of conduct with the graphic designer that meets requirements listed above. In order to avoid the probable risk of misclassification under AB5, we recommend companies to engage in legal counsel to assist with an independent contractor analysis and to craft written independent contractor agreements that accurately reflect the actual business relationship between the company and the graphic designer.
If you need any assistance with an independent contractor analysis or crafting a legally compliant independent contractor agreement, contact Hackler Flynn & Associates.
Do you have independent contractors?
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DISCLAIMER: Content within this post should not be considered legal advice and is for informational purposes only. Communications made through this post do not create an attorney-client relationship. Hackler Flynn & Associates is not responsible for any content that you may access from third-party resources that may be accessed through or linked to this post. Hackler Flynn & Associates is only licensed to practice in California.
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