It is on the November 3, 2020 ballot in California.
The goal is to exempt ride sharing and food delivery app based workers as employees and classify them as independent contractors.
Uber, Lyft, Doordash, Postmates and Instacart financed Proposition 22.
Current independent contractor gig workers receive low wages and no unemployment insurance, overtime pay, workers’ compensation or health insurance.
Independent contractors are responsible for Self Employment Tax of 15.3%, consisting of Social Security tax and Medicare tax.
Employees on the other hand have 7.65% withheld from their paychecks and employers pay 7.65% as a matching cost.
Other forms of compensation for app based workers are proposed in Prop 22 related to healthcare and minimum wages.
Effective January 1, 2020.
The Borello test was the main worker classification method used by employers prior to AB 5. It had a lot of gray area and allowed employers greater latitude to classify workers as independent contractors and to avoid the higher costs associated with employees.
AB 5 assumes workers are classified as employees unless they meet the ABC test, which would make them independent contractors. There are exceptions for some occupations and contracting relationships.
Real estate agents and direct sellers are exempt.
For the exceptions, apply the Borello test.
The California Employment Development Department (EDD) is responsible for worker classification issues.
Governor Gavin Newsom signed AB 2257 into law on September 4, 2020.
It increased the types of workers exempt from AB 5’s ABC test.
Some examples of exemptions from the ABC test for professions and occupations:
Real estate appraisers
Manufactured housing salesperson
Certain occupations in the insurance industry
The main takeaway from all of this is that employers misclassifying workers as independent contractors instead of employees may find themselves in an EDD worker reclassification audit and/or criminal investigation. The EDD is actively pursuing employers suspected of breaking these laws.