Late September in 2019, California's Senate passed Assembly Bill 5 (AB5) for legislation, which grants gig economy workers with protections such as higher wages and benefits. With many employers adding independent contractors to their teams as a way to reduce labor costs in today's economy, the passing of this bill would have a significant impact on select employees and employers throughout the state. The gig economy would specifically see the majority of changes.
What is the gig economy bill?
California AB5, or the gig economy bill, is legislation aimed toward gig economy workers, such as independent contractors, or those who are considered to be self-employed. Companies that use a contractor business model have long been criticized for classifying employees as independent contractors when, in fact, their scope of work often includes the responsibilities of full-time employees. But because contractors are independent workers, they are not protected by benefits and livable wages, and may work longer hours.
For the bill to begin to take effect, it must pass through the Assembly once more. The bill has received support from Assemblywoman Lorena Gonzalez, Governor Gavin Newsom of California, and other government officials. The bill has received immense support in the government, winning:
- 53-11 votes in the House of Representatives
- 3-1 votes in the Senate's Labor, Public Employment and Retirement Committee
- 5-2 votes in the Senate Appropriations Committee
In the Senate's recent full session, the bill received 29-11 votes among 40 lawmakers voting across party lines. If passed completely, the legislation is expected to begin to take effect on January 1, 2020.
How will California AB5 legislation affect the gig economy?
The bill is expected to have a significant impact on independent contractors, as well as companies like Uber, Lyft, and DoorDash that utilize a contractor business model. Rather than considering contractors of such companies as self-employed, they would now be considered as full-time employees under the new bill. As a result, they would then be able to take advantage of the benefits and protections that were not previously available to them as contractors. Here are some more ways on how passing California AB5 legislation would affect gig economy workers:
New workplace protections will be in place for independent contractors.
Driver groups have strongly supported the gig economy bill and have done everything from holding rallies to driving across the state to show their support. Companies like Uber and Lyft, on the other hand, have gone to great lengths to oppose the bill, even going as far as signing petitions to halt the bill's passing.
Under the new bill, ride-share drivers, currently classified as independent contractors, would not need to pay for work-related expenses, such as gas and vehicle maintenance, out-of-pocket. Currently, many ride-share drivers cover these costs as they are not subject to the same benefits as full-timers. Moreover, they are not paid for additional time spent behind the wheel, including return trips. These gig economy workers would have a whole new set of benefits, rules, and regulations available to them under the gig economy bill.
The passing of the gig economy bill can add up to 30% of labor costs.
The reason many employers have been hiring gig economy workers is mainly to cut costs. California AB5 legislation, however, can make it difficult for them to continue doing so.
It is estimated that the passing of the gig economy bill can cause labor costs to increase by 30%, which goes against the goal of many employers. Because they would no longer be able to save money in the way they have done before, employers would need to begin looking elsewhere to cut costs. This can result in an increase in layoffs, causing employees to lose the benefits and compensation that comes with their full-time status.
Gig economy workers will now be able to unionize.
Along with not being able to take advantage of the same benefits and compensation as full-time employees, independent contractors are also unable to join or form unions. Under California AB5 legislation, however, they would be able to unionize since they'd be considered full-time employees of the company they previously worked for on a freelance basis.
Whether or not you're part of the gig economy, it's beneficial to be aware of changes like this in the job market. If you're keen to choose the right talent in the wake of the California AB5 Legislation, you're in luck: ICS can help guide your search. Click below to search for candidates that would perfectly fit your company today.