The Impact of AB5 on Uber, Lyft, and Independent Contractors in California

By Ryan Stenvick, Vice President of Business Development

With the heightened uncertainty surrounding the future of Uber and Lyft in California, I’m reminded of an article that I wrote late last year upon the enactment of AB5. The article detailed five steps that businesses could take to abide by this piece of California legislation. Now, almost a year later, companies are still experiencing trouble in changing their hiring processes to avoid misclassifying independent contractors.

The detrimental effects of COVID-19’s on the economy – paired with millions of Americans still out of work – leads me to believe that the American gig economy will continue to grow in the months ahead. Unfortunately, AB5 could stand in the way for many Californians, negatively impacting their ability to generate another source of income. It will be crucial for companies to adapt their hiring practices to comply with AB5 in the foreseeable future. More, organizations will be challenged in finding legal ways to engage with skilled contractors to leverage their expertise.

So I’ll ask the tough – but important – questions: What has your company done to ensure compliance? How would your organization fare if you were audited tomorrow?

Since the passing of AB5, Acara has helped many of its customers to remain compliant with IC rules and regulations, regardless of state. Don’t allow your business to put itself at risk of misclassification; rather, follow these five tips to align your organization with the new laws that govern independent contractors.

1.      Hire a third-party organization to act as an employer of record for workers who now must be classified as employees. In doing so, this will allow you to divert the cost(s) and risk(s) associated with engaging direct employees.

2.      Partner with an outside talent advisor to create a comprehensive talent pipeline. Not only will this lessen your organization’s need for independent contractors, but it will also ensure your business will have a batch of qualified workers at the ready.

3.      Educate company leaders on the new legislation. By creating internal communications memos and materials that clearly outline AB5’s classification criteria, this could help to inform business executives on the magnitude of misclassification risks.

4.      Streamline your IC vetting process. Because of California’s AB5 regulations, it will be important to draw up established processes that allow your organization to quickly – and accurately – classify your workers. Creating these processes now will save you time and money later.

5.      Audit your existing independent contractor population. Many contractors will have to be reclassified under the new law, so get a head-start on reviewing your current pool of independent contractors.

While it remains to be seen what exactly will happen with Uber and Lyft, this news story can serve as the perfect wake-up call for your business. By prioritizing independent contractor compliance today, you’ll save your organization a major headache tomorrow!

Looking to connect with Ryan? Visit his LinkedIn page or shoot him a note at stenvickr@acarasolutions.com.

If you’re searching for more information on workforce management solutions that can help your business grow, visit the Acara Solutions blog. Be sure to check us out on LinkedIn, Twitter, and Facebook.

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