The law puts tough restrictions on who can be independent contractors or freelancers rather than employees. Supporters say it addresses inequities created by the growth of the gig economy, including the employment practices of ride-sharing companies like
Although the law affects companies of all sizes and out-of-state businesses that use
“Little companies just trying to start out won't be able to afford our services,” says Ellison, whose
Ellison won't need to hire her construction contractors; they're subcontractors, a classification that complies with the new law.
The law approved by the
The law is being challenged in state courts, and companies including
Independent contractors and freelancers have long been a sore point for federal and state officials who contend that many of these workers are doing work that employees do. When employers classify workers as independent contractors, they avoid taxes including the 6.2% of salary and wages companies must pay for
For many small business owners, especially those who do a variety of projects requiring different types of expertise, contractors provide more flexibility. Webconsuls, a digital marketing agency with offices in
“We may need a developer who specializes in a specific language to help us build one website," managing partner
The layoffs companies were forced to make during and after the Great Recession encouraged many small business owners to choose independent contractors over employees. Contractors costs less — they don't get health insurance, 401(k) contributions and other benefits — and owners don't have to let people go when business slows.
The new law allows workers to be classified as independent contractors only if companies don't have the right to control their work and how it is done. A number of factors go into making that determination, including how closely the worker is supervised — for example, who sets their hours. The work being done must not be part of the company's regular business, and the worker's occupation must be distinct from the company's; in other words, a graphic designer cannot be an independent contractor for a graphic design firm.
There are exemptions for professionals like doctors, lawyers, architects and insurance brokers, but they must have the freedom to set their own hours, negotiate their own fees and exercise their own judgment as they do their jobs. Workers like graphic artists, freelance writers and travel agents can also be exempt if they have similar autonomy. And people who work in barber shops, hair and nail salons and spas can have exemptions, but they have to set their own rates and hours, choose their own clients and be paid directly by the clients.
“I don’t work with freelancers in
Other companies inside and out of
Companies that don't comply with the law face the possibility of penalties running into the tens or hundreds of thousands of dollars, says Nannina Angioni, an employment law attorney with
Moreover, Angioni says, the law can lead to lawsuits brought by workers.
Some owners may believe it's OK to use independent contractors or freelancers because some workers like being part of the gig economy, says
“These people don’t want to be employees" is the position owners may take, Boro says. But, he warns, they need to follow the law, not workers' wishes.
This story has been corrected to show that companies pay 6.2% of employees' salaries for
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