Employees are paid through payroll and an employer withholds and pays payroll taxes.Įmployees have many legal rights under state and federal labor laws–for example, employees must be paid at least the minimum wage and many must be paid time-and-a-half for overtime. Instead, you work for someone else’s business under its direction and control. Employee: You’re an employee if you’re not running your own independent business.This is a big deal because employees and independent contractors are treated very differently for tax, labor law, and other legal purposes. These are the only two choices, there’s nothing in between. Whenever a business hires you to perform your services it must decide whether you are an employee or independent contractor. Employers classify workers in one of two ways: It requires that employers use the ABC test (more on that later) to determine a worker’s classification. What is AB5?Ĭalifornia Assembly Bill 5 (AB5) is a law that went into effect on January 1, 2020, and it provides new rules for how businesses classify workers. So, even if you’re not living in California, it’s essential to understand AB5 and how it affects freelancers like you. While the law only applies in California, other states may create their own versions of AB5–New Jersey, New York, and Illinois are already thinking about it. AB5 is a new law that makes classifying workers as independent contractors much more difficult. And it has nothing to do with droids but everything to do with freelancers and gig workers. Sounds like an intergalactic dream team, doesn’t it?ĪB5 might seem like it’s from a galaxy far far away, but it’s actually from somewhere much closer: California. The first time I heard of AB5, I thought it was a fresh new droid from Star Wars.