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California’s Gig Economy Bill to Have Groundbreaking Impact on Small Business
From Uber drivers to freelancers, there are approximately 75 million gig economy workers in the U.S. And that’s just an estimate drawn up by the Fed. The exact number of gig workers and side-hustlers remains as controversial as the definition of ‘gig economy‘ itself.
This September, California lay the groundwork for what can become a nationwide gig economy revolution. Assembly Bill 5 (or AB5) has been adopted by the California Assembly and on September 18, 2019, signed by California Governor Gavin Newsom.
The new CA law is already making a powerful statement way beyond the state and is forecasted to hold a groundbreaking impact on the rights of freelancers and independent contractors across the nation.
California’s gig economy bill backfires on Uber and Lyft
Assembly Bill 5 complements the earlier so-called Dynamex decision which in 2018 lay the groundwork for turning contract workers into employees with the corresponding minimum wage, employee compensation, and benefits. With clarifications brought about by AB5, the now extended and amended law goes into effect statewide on January 1, 2020.
An instant result of AB5, made in large part possible due to the summer-long lobbying efforts of contract workers across California, is the “overnight” transformation of app-based Uber and Lyft drivers from “contractors” to “employees”. With all their continuous (and scandalous) efforts to fight the bill, neither of the taxi-hailing giants were able to get an exemption.
In addition to employee wages and benefits, the new law allows yesterday’s contract workers with no employee rights to go ahead and sue for injunctions — which didn’t wait long to happen. Days before the bill was signed by Governor Newsom, Uber was already sued under it.
The ‘ABC test’ for small businesses employing freelancers
While Uber and Lyft are already facing upfront impact on their economy, infinitely smaller companies are wary of the new bill as well. With countless small businesses employing the aid of “independent contractors” aka freelancers, plenty of entrepreneurs are now holding guesses at their workers’ status.
To clear up (some of) the confusion, AB5 defines an ‘ABC test’ for businesses hiring remote employees. The gig economy bill defines workers as employees if “(A) they perform tasks under a company’s control, (B) their work is integral to the company’s business and (C) they do not have independent enterprises in that trade.” [Source: WBUR]
For example, if your company specializes in carpentry and you’ve been hiring carpenters as “independent contractors”, that means they’d have to become employees with corresponding wages, compensation, and benefits since their work is “integral to the company’s business”. However, if the same carpentry business hires a freelancer to do marketing, it may be a whole different story.
According to the National Law Review, smaller businesses employing freelance workers can safeguard themselves by hiring freelancers with a business license that qualifies them for independent work (not to be confused with professional licenses). This, along with having your freelancers maintain a separate work office (such as working from home) is one of the surest ways to “play it safe” under the new CA law.
National impact of CA’s AB5 gig economy bill
In California, AB5 will affect at least a million gig economy and freelance workers who may now get their share of compensation and employee benefits.
The huge national stir-up caused by AB5, however, goes far beyond state borders. The New York Times reports that the gig economy bill has inspired more states to action: “a coalition of labor groups is pushing similar legislation in New York, and bills in Washington State and Oregon that were similar to California’s but failed to advance could see renewed momentum.”
Contractors nationwide have ample reason to look up to California and be active in pushing through similar laws in their states. Meanwhile, small business owners employing freelancers would benefit from modernizing their employment practices without waiting for nationwide legislature, which is only a matter of time.
Giving your workers the flexibility of gig economy while offering fair wages remains the best way to gain loyal employees – whether they work in-office or remotely. Here are more ways to help your employees work remotely and save big on business costs.