Re: AB5 goes into effect January 1
It occurs to me that freelance writers could deal with AB5 by joining
together to create a company. You can't get around AB5 by
incorporating yourself, since its definition of individual "includes
an individual providing services through a sole proprietorship or
other business entity," but a company with multiple employees is
definitely not an individual.
All independent contractors should become their own businesses, rather than ad hoc employees.
I might be missing or misstating some points but here is the gist of my take on AB5.
Businesses in California became reluctant to work with unincorporated ICs many years ago. A sole proprietorship does not require any formalities. So an individual may be a sole proprietor and run their own business. When that person does work as an independent contractor, however, California labor law comes in to play and those sole proprietors can be treated as employees by the law, even if they have a contract that states otherwise because labor protections are inalienable. A sole proprietor may be sued and his assets attached to pay for legal liabilities.
Limited Liability Company (LLC)
California recognizes LLCs. An LLC may be one person or several as members of the LLC, provided that the LLC has assets separate from its members. Formalities and state filing are required. Some businesses in California are reluctant to do business with LLCs because the person doing the work may look like an employee under the law when the LLC is new or has few past clients. LLCs offer tax advantages to their members, better lending options, and protections against lawsuits.
California recognizes both C and S corporations and can be one person. S corporations are simpler than C corporations but with less flexibility. Corporations offer better tax advantages than LLCs but have more formalities.
Learn more about California businesses. https://www.sos.ca.gov/business-programs/business-entities/starting-business/types/
As a business, a person can perform work for different clients and control their own work. Employing businesses would work with ICs but many businesses wanted to supervise and control the work, so some ICs were expected to work as employees without the benefits of being employees. For California, this also meant that employers were not paying or deducting certain taxes, like workers compensation. ICs would work with ego-fluffed temporary employment agencies (recruiters) serving as contractors to clients with 40% or more of the billed rate of pay going to the agency. ICs could work W-2, corp-corp, and with other statuses but the employer formed its contract with the agency. Work under these contracts are projects with set terms. Intel would skirt the project idea and have ICs working on-site for 18 months on projects described as 6-12 months; recruiters would say, "these projects tend to go longer." Some state agencies would have ICs "on project" for several years.
Writers are specified in AB5.
âProfessional Servicesâ: Services provided by a freelance writer, editor, or newspaper cartoonist who does not provide content submissions to the putative employer more than 35 times per year, this includes Editors, Technical Writers, Writers, and Authors.
Perhaps, little will change in how technical writers and other IT consultants do business because modern IT consulting in California has adopted the project model for hiring ICs. For example, a technical writer may sign a contract to produce documentation in support of a system. The documentation may include several parts but it would technically be one piece of writing on one project. A potential problem may occur in projects that run for a long enough time that the IC looks like an employee. Some projects can run for several years. There will likely be some tailoring in how employment contracts are handled.
Journalists have worked as freelancers for many years and many are uncertain how they will do business after AB5. https://www.theguardian.com/us-news/2019/dec/18/california-ab5-workers-rights-bill-freelancers
Journalists need to follow the lead set by IT consultants and build themselves as businesses. A freelancer is a sole proprietor, however, a writer can form an LLC or corporation and be a company that does business as it sees fit. A single person LLC will have to employ itself and satisfy all of California's tax requirements under AB5 but the LLC will be exempt from AB5 with respect to doing business with other businesses. As a business, the journalist may need to draft contracts that provide a set number of articles for a client. If the journalist as a company controls the contract, then there is little the government can do to interfere with that contract, as freedom to contract is a protected constitutional right. Remember, though, the journalist is an employee of its own company, so the state will get its taxes.
It's funny to me that journalists who spend their lives researching and writing about business are concerned about their changing market and not discussing or seem to not give much thought to becoming their own businesses.
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