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California Bill Gig Economy

New California Bill Changes the Game for the Gig Economy

Richard ClaytonRichard Clayton
October 1, 2019

Some call it a revolution and others prefer evolution. However you slice it, one thing is clear – the gig economy is the future of work.

We now live in a world where traditional workers are changing jobs or careers multiple times, individuals are eager than ever to take on additional jobs for more income, and the internet is creating an endless marketplace of opportunity.   

What is the Gig Economy? 

The gig economy is a general term that refers to freelancers, part-time workers, one-off contractors, and other non-traditional employees. The term may be defined by the work arrangement, whether or not you are a permanent employee, by a legal classification, or by the nature of the work being done.

Gig Economy Data

Source: McKinsey Global Institute, 2016

According to a survey by McKinsey Global Institute, nearly a third of the workforce today is provided by gig workers. With such staggeringly high statistics, it only makes sense that legislation start taking note and treating this large segment of the workforce with its proper respect.

Whichever term you use to classify your gig workers, a new law proposed by the state of California is about to change the game for remote workers.

California’s AB5 Bill Explained

The AB5 (Assembly Bill 5), also known as the Gig Worker Bill, is the most recent of the California labor laws being amended to improve labor conditions. The bill recently passed state legislature on September 11th, 2019.

This new bill expands the definition of a paid employee, requiring employers to give many independent contractors more benefits and pay guarantees. The parameters will include any worker wherein the company controls the performance of the task or if the project is part of the regular business process. This is a huge win for gig workers, and it means that many benefits that were previously withheld from independent contractors will now be required by law.

Earlier this year, the UK enforced a new law under the Good Work Plan which is aimed at improving workplace conditions and catering to the needs of remote workers in the UK. The new law ensures that all workers in the UK receive a payslip which will include the number of hours worked, making it simpler for them to make sure they are being paid in full.

This comes to show that with AB5 in the works, independent contractors are dominating the market.

Gig Economy: Not a Passing Fad

Another survey by WebsitePlanet showed that freelancers are going to make up the lions’ share of the workforce in the US by the year 2027. Here are a few more numbers to show that gig workers are here to stay: 

  • The current freelance market is up by 7% in the last five years
  • 47% of millennials are freelancing – more than any other generation before
  • 80% of workers want to have remote work assignments and 50% of US jobs are actually quite compatible with remote work conditions
  • Freelancers contributed $1.4 trillion to the US economy in 2017 alone

Yes, there is no question that freelancers are becoming more accepted as proper employees and not simply independent contractors. AB5 recognizes this shift, and it promises to transform the way independent contractors are treated.

What Does This New Bill Mean for the Gig Economy?

To the general approval of roughly 30% of the workforce, AB5 is ushering in several policy reforms in how employers classify and treat their gig workers as well as traditional California freelance payments. Now many of these independent contractors will have access to the same or similar rights as traditional, long-term employees. Some of the benefits that will soon be required by law to be provided by an employer to their gig workers include:

  • Minimum wage guarantee
  • Overtime pay
  • Sick leave
  • Family leave
  • Unemployment insurance
  • Disability insurance
  • Workers comp
  • Sexual harassment protection
  • Other workplace discrimination protection
  • Social security benefits
  • Medicare benefits

The benefits are manifold, and as usual, other states are looking to California to see where the future of their own legislation will be taken. If all goes as plans, California governor Gavin Newsom will sign the bill and AB5 will go into effect on January 1, 2020.

Who Opposed This New Bill?

While the bill was passed in a 29-11 vote (56 to 15 from the Assembly), AB5 was not welcomed by all. In fact, opposition was raised by many large businesses across the sectors from healthcare and newspapers to high tech and construction. Major companies like Uber and Lyft, brands that rely heavily on gig contractors to fuel their industry, were the loudest protesters.

The obvious criticism is that AB5 will force employers into a new fiscal responsibility, placing financial hardships onto the companies which are outsourcing the independent contractors. Considering the fact that most companies only outsource a project because it is an economically-efficient way of getting the work done for less, AB5 might inadvertently cost some freelancers their livelihood. If companies are forced to take on additional financial obligations such as paid sick leave and disability insurance, employers may decide that the independent contractors are no longer worth the investment.

Jim Nielsen, a Republican senator for California poetically stated on the Senate floor “We are not witnessing the dashing of the American dream.” If all employees are to be treated equal, the benefits that come from independent contracting (more cost-efficient, more flexibility, less legal problems) are shot down.

AB5: Disrupting the Gig Economy Everywhere

The gig economy is not just looking for a free handout. Independent contractors provide businesses with a more convenient and flexible range of employees to work with, provide dedicated and quality work, and have a competitive marketplace to keep pricing at a minimum.

“Your business cannot game the system by misclassifying its workers,” Lorena Gonzalez, the Democrat assemblywoman who launched AB5 in the first place called out. This is one response to the major explosion of gig economy across the nation.

Everyone is now anticipating that this new bill will be a real game changer for California freelancers and other states going forward.

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