[NEWS] The End of Freelancing and Gig Work in California?

[azgold]

While vetting a new registration this morning, I came across an article in Forbes that should be of interest to anyone who is a freelancer/independent contractor in California. This may be a type of death nell to the work freedom you're used to.

Now, in order for Californian companies to have you work for them as an independent contactor, they must be able to prove three factors -

Under this new test, an individual is presumed to be an employee, unless the employer can prove all of the following:

(A) the worker is free from the company’s control (B) the worker performs work that isn’t central to the company’s business and (C) the worker has an independent business, trade or occupation in that industry.

According to the author, Heidi Lynne Kurter, approximately 7,200 media jobs have been lost this year alone, as the new law only allows freelance writers, journalists, etc. up to 35 submissions per year before they have to be considered employees.

As a consequence, many job listings are excluding freelancers/gig workers from California.

The Hollywood Reporter stated many publications are going to avoid working with California freelancers to avoid potential lawsuits. They’ve admitted to already seeing SEO, transcription and writing job notices explicitly state California freelancers won’t be considered.

You can read the full article here: California Threatens $1 Trillion Gig Economy With New Law

Personally, I think the powers-that-be who instigated this law do not have an understanding of the how and why people make their living this way.

So, would networks have to declare California-based affiliates as employees? They are central to their business. I guess the way around that is for the affiliate to register their business. Sounds like that would do it.

I also wonder if people will leave that state for another to keep their work freedom.

 

[CashXtraction]

Thanks for sharing this.

 

[Graybeard]

I read about this also but is saw it in a different light ...
Abuse of the employment laws protecting workers.

If you are truly a freelancer hired to complete some project and then move on to the next project in a reasonable period of time for the next client/firm then you are indeed an 'independent contractor'

The problem is businesses hiring workers as independent contractors using remote work. Or, as an example; ride-sharing's condition of owning and insuring the work vehicle as the 'independent' qualification --while dictating work practices to the so called 'independent contractors' for the purpose of lower taxation and the denial of normal employee health and welfare benefits.

It's a situation of having your cake and eating it too. Not paying legally mandated employee benefits and being able to shout orders to your fake independent contractors.

 

[azgold]

I read about this also but is saw it in a different light ...
Abuse of the employment laws protecting workers.

If you are truly a freelancer hired to complete some project and then move on to the next project in a reasonable period of time for the next client/firm then you are indeed an 'independent contractor'

The problem is businesses hiring workers as independent contractors using remote work. Or, as an example; ride-sharing's condition of owning and insuring the work vehicle as the 'independent' qualification --while dictating work practices to the so called 'independent contractors' for the purpose of lower taxation and the denial of normal employee health and welfare benefits.

It's a situation of having your cake and eating it too. Not paying legally mandated employee benefits and being able to shout orders to your fake independent contractors.

Do you think other states will adopt this law?

I can see both sides of this but my knee-jerk reaction went directly to the freelancer/independent contractor. I do though, have one client who takes and submits government deductions on my behalf, as per our contract. I don't get benefits like the regular employees do.

 

[T J Tutor]

This can easily be overturned, as it was in New York and a handful of other states. This has been a battle since I was a young man and it keeps flipping back and forth. New York finally re-wrote the statutes in a fashion so as to enable the independent contractors and gave them clear guidelines so freelancers could function easily as sole proprietors, et al. New York simply said establish a business credential so as to operate as a B2B business even as an individual.

It is all about the abuse factor. In the end, these rulings typically get overturned for one simple reason, there are businesses in every state that are exempt from this type ruling. The number one industry in the USA exempt from these rulings, ALWAYS!, Realtors working for Real Estate Brokers. Another, and this is huge in California, most programmers like stack developers. A full stack developer almost invariably works on a specific project based on a projection of time and cost. Most every stack developer prefers independent contractor status and if hit big in California by this, well, all of the IT development hubs will see these stack developers relocating.

 

[azgold]

This can easily be overturned, as it was in New York and a handful of other states.

I didn't know this isn't a new thing. I don't recall ever seeing this type of thing here. What reason do they give for overturning it? I'm just interested to know what they say.

Where I live, if you're self-employed, including being a freelancer/independent, you pay your own taxes, pension, etc. You're either self-employed or you work for an employer. Period. You know that going in; that you're 100% responsible for all of your deductions if you decide to go the independent route. Healthcare isn't a factor, as everybody gets it but additional benefits, you have to purchase yourself if you want them.

I know the article mentions hourly wage but I don't know a lot of independent workers who'd be willing to trade their status for a 9-to-5.

The number one industry in the USA exempt from these rulings, ALWAYS!, Realtors working for Real Estate Brokers.

Huh! I hadn't considered the broker situation. It would be the same thing for insurance and some other industries, too, I imagine.

Most every stack developer prefers independent contractor status and if hit big in California by this, well, all of the IT development hubs will see these stack developers relocating.

Okay, so I circle back to the question: Do the people who drafted this law have any understanding about the hows and whys of being a freelancer/independent contractor? I understand the possibility of abuse but we are free to accept or turn down gigs. Getting burned is possible but it can teach you to improve your process, i.e. getting paid up front or a 50% deposit, using escrow, etc. Informed freedom of choice and sometimes you learn as you go.

 

[azgold]

They are working for these companies exclusively --perhaps remotely and/or temporarily.
If you are an individual you are an employee if you work exclusively for one business regardless of what exemptions have been carved out by judicial or legal process. It's just a sham arrangement.

Got it, thanks.

But couldn't they just be classified as a sub-contractor of sorts, at least if it's a temporary gig, or article submission, an SEO project, whatever. If I understood what was in the article, a person would just need to get their business license, assuming they are industry-appropriate. Of course, I don't know how hard that is there, maybe not easy, I dunno.

 

[Graybeard]

California's going after employers classifying employees as *paper independent contractors*
They are working for these companies exclusively --perhaps remotely and/or temporarily.
If you are an individual you are an employee if you work exclusively for one business regardless of what exemptions have been carved out by judicial or legal process. It's just a sham arrangement.

California supposedly has a hostile business environment yet is has become the world's 5th biggest economy (if it were a free standing state) if I recall correctly 30 years ago it was the 9th largest --how can this be?

 

[T J Tutor]

To sum it up:
Governments want to stop the abuse by companies using the "contractor" status to avoid "employee" status.

Truth:
This has been a battle since I was in my teens, at various times and industries.

Resolve:
Anyone that plans to be, or is, a true independent contractor simply needs create, and present, their ICF to anyone agreeing to use or pay for their services. It is recommended (highly) to establish oneself as a Sole Proprietor, or an LLC, or an S Corp, for representation of oneself on the ICF. Doing these few simple things removes most any employer/subcontractor challenges on status, as long as the hiring company and the sub-contractor (or independent contractor) do not have requirements in contract that violate independent contractor state requirements for status.

It IS really simple to avoid any pitfalls for a true independent contractor.

National businesses that do this daily:
Realtor and their Brokers
Builders and their subcontractors (e.g rooders, drywallers, electricians, etc.)
Software Developers (stack engineers, client-server GUI developers, graphics engineers, etc.)

Anywhere that outsourcing is required usually comes under these titles of independent and subcontractor status.

It IS simple! Get a sole proprietorship at minimum and get a solid ICF. Problem solved as long as one dots the i's and crosses the t's.

 

[T J Tutor]

Per NYS:

Independent contractors are free from:

• Supervision
• Direction and
• Control in the performance of their duties.

They are in business for themselves, offering their services to the general public.

Signs of independent contractor status include a person who:

• Has an established business
• Advertises in the electronic and/or print media
• Buys an ad in the Yellow Pages
• Uses business cards, stationery and billheads
• Carries insurance
• Keeps a place of business and invests in facilities, equipment, and supplies
• Pays their own expenses
• Assumes risk for profit or loss
• Sets their own schedule
• Sets or negotiates their own pay rate
• Offers services to other businesses (competitive or non-competitive)
• Is free to refuse work offers
• May choose to hire help

An employer-employee relationship may exist regardless of how the hiring party describes it. For example, if you give a worker a 1099 Form rather than a W-2 Form, they may still be an employee. Persons who work for you may qualify as employees under the law, even if, for example:

• You have the person sign a statement claiming to be an independent contractor
• They waive any rights as an employee
• You require them to obtain a dba in order to work for you

Under the Unemployment Insurance Law, an agreement by employees to waive their rights under the law is not valid.

Remember that the real distinction between the employer-employee relationship and the independent contractor relationship depends primarily on the level of supervision, direction and control exercised by the person engaging the services. It is not defined by what the relationship is called by the participants.

Whether the relationship is one of employer-employee will depend on several factors.

 

[Graybeard]

The new California would not effect most REAL and not sham freelancers.
People doing services on a contracted basis, and as a business (that is important), for different companies --should not be affected. But if a company hires you to do their work and sets the work hours, even if it is 15 hours per week at some rate --then they are treated like an employer and subject to the employment laws. Forbes is a business management oriented magazine and IMHO that is a 'scare article' and rather unbalanced.

As an example: A new social media company hire moderators and they work remotely doing the work that would be normally done by employees. The company offers them a piece-rate compensation for the work done. Something like $0.80 per *moderation action*. They are not employees?
DIR - Frequently Asked Questions
in most states they would be ...

 

[azgold]

Getting your biz paperwork in order is solid advice for anyone, anywhere.

Carries insurance

I have personal insurance but I think this refers to business/commercial insurance?

I tick most of the boxes on that list but not all, so probably a good thing I don't live in sunny Cali.

So, guys....is this law a good thing or a bad thing? Sounds like it could be both at once.

 

[azgold]

I figured that I wouldn't need liability or other types of insurance like construction contractors do. Right now, I personally don't have to have any, legally speaking because I do keyboard work, as you put it.

Yeah, things are becoming more automated, for sure. I like to think there are some things that will still require human input. Guess time will tell.

The problem with this new law, for freelance writers/journalists in California, may be the 35 submissions a year limit. That's not necessarily a lot for a regular freelance contributor. I used to do more than that a month for a marketer that I used to write for. He wasn't my only client but he was one of my best ones.

If, as @T J Tutor suggested, this law is potentially overturned, I guess these could become moot points. It's supposed to go into effect in January, so won't be long to find out, I suppose.

 

[azgold]

Employers will outsource the work out of state and evade the new laws.

It touched on that in the article, said that some employers now hire outside the state, to be safe.

If you create a program or a script will the state want to tax it's production?

I'm sure they would if they could figure out how to do it.

Double taxation is OK apparently. So, I really don't believe fairness to workers and to the consumer is the real issue here. It's a money grab for the state and the larger special interests.

I think it works that way pretty much everywhere, sadly.

 

[Graybeard]

Builder's sub-contractors have to supply a certificate of worker's compensation insurance to the builder. You cannot pass through insurance liability legally and avoid employment laws in the state where I was a Licensed Building Contractor. If you attempt a pass through arrangement you will be liable for employee benefits if you are audited by the IRS or that state's Treasury Department. You also can be liable for faked 1099 Forms. I know this for fact -- been there

 

[Graybeard]

Depends. I had a friend who was a real estate agent and he bought an errors and omissions policy indemnifying him. But that was prudent but not required of him. Worker's compensation usually entails work done on the premises.

1. at the office
2. on the construction site (protects the property owner from liability (and superior contractors e.g.; the general contractor from the sub-contractor or his workers.)
   
3. However, if you are working as a delivery person, driver, field salesman, service tech for either a employer or contractor's business on a customer's premises there is injury liability. The property owner usually has some liability as a second or third party.

If you are doing some 'keyboard work' as a legit freelancer from your home office there is no work injury liability --other than your own responsibility. If you maintain a real business, and they ask on you IRS home office deduction form if your assets and what percentage are at risk, as an example, to qualify for those business expense deductions.

Much of this is redundant as people are being replaced with robots and AI more and more. So, what were are really seeing here is a state government trying to replace lost revenues. The Gig Economy is already on the down side of the bell curve --people are just not that aware of it.

Yang2020-- UBI. Trucks will drive themselves in 10 years. Many of the jobs farmed out to the Gig Economy will be automated.

Take the whole CPA thing --a tracker is an automation that can replace a few humans making counts; $60 mo v. some thousands a month with benefits

Automated scripts can do the work of many people. AI will go one step further. That's all well and fine but you need disposable income to consume the 'product.'

 

[Graybeard]

35 submissions is the occasional work limit?
This only applies to California businesses and California workers -- it is a state law not federal? What I mean is there is no jurisdiction outside of the state. I haven't read the text of the new law -- it doesn't directly affect me.
If so, interstate in the US it has no effect -- internationally the same, no effect.
In the end it may be counter-productive. Employers will outsource the work out of state and evade the new laws.

Bottom line this is more about state tax revenue than worker rights. You have to see the underlying reasoning. Also, it is a competitive thing. The independent contractor status of the ride-sharing disruptors has become a world wide awareness issue. It is going to be a lot harder to hold back the tide of future automation and AI.

If you create a program or a script will the state want to tax its production? How could they assign a real value to the robot's work.

I live in a state that does not tax labor. You pay tax on the parts (materials) or the materials are taxed at the source. In California service labor is taxable -- like car mechanic's labor as an example. The car mechanic pays state income tax too.

Double taxation is OK apparently. So, I really don't believe fairness to workers and to the consumer is the real issue here. It's a money grab for the state and the larger special interests.