It seems almost month-to-month the definition of an independent contractor is changing in California.
While AB-5 imposed strict restrictions on who can be classified as a contractor, new laws such as AB-2257 have added exemptions as to who is a gig worker in the Golden State.
Having a thorough understanding of who can be hired as an independent contractor is crucial for employers. In addition to penalties for wage violations associated with a worker being misclassified, there are civil penalties for willful misclassification between $5,000 and $25,000 per violation.
In this post, we cover the ins and outs of worker classification in California to help you better understand if you are hiring an employee or an independent contractor.
Whenever you have an open position, you may think that it’s up to you whether or not you have to hire the worker as an employee or contractor. However, it’s up to the state you’re hiring the worker in.
Per the rules of AB-5, you determine a workers’ classification in California using the ABC test. In a nutshell, the ABC test outlines three scenarios that must exist in order for your worker to be classified as an independent contract:
If it seems a little confusing, don’t fret. We actually did a deep dive into the ABC Test here, providing examples of what each prong can look like. And, of course, nothing can replace a conversation with a lawyer if your hiring decision passes muster.
However, just because a worker fails to meet these criteria doesn’t mean they’re not an independent contractor in California. In both AB-5 and AB-2257, exemptions are laid out.
AB-5 was a California state law that went into effect in 2020. The bill switched the default standard for determining if a worker in California needs to be classified as an independent contractor or employee from the common law test to ABC.
Many workers saw the switch over to the ABC standard with the passing of the AB-5 bill as a win. However, from an employer’s perspective, it became increasingly more cost prohibitive to onboard workers in California for projects.
For some individuals, particularly often underpaid musicians, the cost of incorporating or establishing an LLC and related expenses were prohibitively expensive. This led to a petition where over 189,000 signatures were collected to add exemptions for independent California music professionals. This ultimately led to AB-2257, an addendum to the law.
Think of AB-2257 as the sequel to AB-5.
With AB-2257, the ABC test stays the default standard for employee classification. The passed bill simply adds more exemptions that expand who can legally work as an independent contractor in California.
Want to read AB 2257 for yourself? Review the clauses and exceptions within the bill here.
AB-5 and AB-2257 set a laundry list of industries and occupations that are now exempt from the ABC test’s stringent requirements. Let’s break it down.
The biggest impacts to the entertainment industry from AB-2257 are in music. AB-2257 exempts a vast majority of music professionals from the ABC test:
Plus, any other individual engaged to render any creative, production, marketing, or independent music publicist services related primarily to the creation, marketing, promotion, or distribution of sound recordings or musical compositions.
Musicians who do not receive royalties from a sound recording or musical composition must receive the applicable minimum and overtime wages.
Musicians and groups hired for a single-engagement live performance event (i.e., a concert) are exempt from the ABC test. Except if they meet any of these situations:
The state of California still wants to be an entertainment mecca. Comedians, improvisers, magicians and illusionists, mimes, spoken word performers, storytellers, and puppeteers that perform original work are also exempt.
Just as long as they are:
AB-2257 adds new exemptions for companies who contract with someone for the purposes of providing services at the location of a single-engagement event. The ABC test does not apply if the individual provides 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.
On paper, the exemption may sound clear. But, do not interpret this in any way as legal advice. If you have questions or any doubts, talk to an attorney.
With this exemption, we’ll see how it affects the entertainment industry once the pandemic is over.
AB-2257 eliminates restrictions previously in place by AB-5 to independent contractors in California working as photographers, photojournalists, freelance writers, editors, and newspaper cartoonists.
In addition, AB-2257 removes any editorial submission cap that requires contractors to convert to full time after completing a specific amount of work. The bill only requires businesses to refrain from displacing existing full-time employees to use one of these types of contractors.
AB-5 also defines the following roles as exempt professional services:
All independent professional service providers must:
AB-5 also provides specific exemptions to roles in industries including medical, legal, and real estate.
Let’s say you hire a web designer. You thought this person nailed your project. Now you want to refer them out to others.
Businesses that refer an individual’s services to new clients may be exempt from the ABC test. AB-2257 references graphic design, web design, photography, and event planning among other specific services covered by referrals.
To be exempt, referral agencies also have to be able to show they can meet these eleven conditions:
Keep in mind the above information is not legal advice. Nothing can replace the advice provided by a trusted lawyer.
Treat it more so as a starting point, so that you can then ask a lawyer more specific questions. For more resources focused on the CA entertainment industry, we recommend you check out The Essential Guide to California Tax Credits and The Producer’s Guide to Los Angeles Film Permits.
If you have questions about hiring and onboarding California workers within the entertainment industry, reach out to Wrapbook.
New exemptions are allowing employers even more opportunities to temporarily hire in California. Find out the latest criteria to help you navigate employees versus independent contractors in California.
At Wrapbook, we're all about providing the very best free resources to producers and their crews. However, this post is not a substitute for professional legal advice. Answers do not create a company-client relationship, nor is it a solicitation to offer legal advice. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your decisions or rights.
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