What does compliance with AB-5 look like for the small business or employer?
Great question! I have been working on this question for several months and still have NO definitive answers because the traditional companies I contacted have absolutely no idea how to work with a music contractor who typically hires several hundred music professionals per year. Based on their current pricing structure, it is extremely cost-prohibitive. Therefore, we will need to think outside the box.
Disclaimer: I am not an attorney or CPA, I am simply sharing information that I have learned over time. Please contact your attorney and tax accountant ASAP.
Numerous attorneys have advised complying with AB-5 until an exemption is carved out or the law is amended as the fines are stiff. At a minimum, we will need to do the following in order to comply with AB-5 and pay people as employees:
- Payroll: Hire a payroll company or learn how to process your own payroll ensuring that you are withholding/paying all of the taxes that small businesses are on the hook for. Monies must be withheld for social security, Medicare, Federal Unemployment AND California Unemployment, Employment training tax, and possibly more. I’m still learning. Different reports must be sent both monthly and quarterly. This is the main reason that I am choosing to hire someone to process our payroll. The fines for noncompliance are too steep to risk doing it wrong. Traditional payroll companies charge a monthly fee PLUS an additional fee per person/per month. I may have a great solution to this problem and will share it ASAP! Suggested reading: Gusto Blog – Here’s How Much It Actually Costs to Hire an Employee in California.
- Workers’ Compensation Insurance: CA law requires all employers with at least one employee to have workers’ compensation insurance. After calling numerous insurance agencies and being told that they do not offer “staffing agency or employment agency” insurance policies, I called the California Dept of Insurance. They said they can not recommend insurance agencies but suggested I search for Company and Agent/Broker Information, click on the link Agent Language Locator and follow the prompts to get a list of agents who offer Workers’ Comp insurance. This listed over 100 agents in my geographical area. After calling 15 agents today (New Year’s Eve) I deduced that they are not open and will need to call them after the holiday. Update: State Compensation Insurance Fund was recommended on a FB forum. They seem to understand how to work with temporary staffing! I will submit a request for a quote and share follow up info later. They posted the following:
“Businesses involved in Temporary Staffing or operating as a Professional Employer Organization (PEO) have unique considerations. State Fund has another process in place to create a policy that is right for you. Click the button below to continue your application. If you need help, feel free to call us at (888) 782-8338.”
- Register Your Business With the Employment Development Department (EDD) 866-745-3886: For 2020, you can’t do this until January 1st or later. If you try to register today, it will ask for 2019 wages. You will need to register your business within 15 days after your first payroll period. Click on e-services for businesses and follow the prompts. They said that a worker can be classified within a business as both an employee and an Independent Contractor depending on their job duties. Use worksheet DE-38, Employee Determination Guide, to figure out how to classify workers.
There are a lot more steps to properly set up your own unique business and you should work with your attorney to ensure that you haven’t missed anything critical. I hope this helps! In the meantime, please continue contacting your legislators and raising awareness about AB-5 and how it will impact your livelihood. We truly need an exemption NOW!