The California legislature has approved a bill - known as Assembly Bill 5 - that will classify gig economy workers as employees in the western US state.
It’s believed the bill will mostly affect technology firms such as Uber and Lyft, which classify their drivers as contractors. The result of Assembly Bill 5 will mean these companies now have to treat them as employees when the legislation goes through on January 1, 2020.
The costs for companies in California would be significant. In fact, some estimates suggest costs for those firms would increase by 30 per cent if they have to treat their contingent workers as employees.
It’s believed that reclassifying drivers and giving them full benefits would increase Uber’s labour costs by $500 million annually in California alone. However, Uber has denied the law applies to its drivers and plans to fight the bill in court.
If the bill goes into effect on January 1, it’s believed that other Democratic-controlled states, such as New York, are likely to follow with similar legislation.
It’s not just technology firms that the bill will affect either. Contracting work has taken hold of many industries in California. This is down to the growing number of contingent workers that are now actively seeking contract work.
The difference between an employee and an independent contractor
The bill, which would cover as many as 1 million Californians who work in the gig economy, won’t affect all non-permanent workers. Instead, it will only be applied to independent contractors.
As we covered in our recent blog, ‘What is the Difference Between Permanent, Temporary and Contract Work?’, independent contractors are self-employed workers that are paid a flat amount by the company that hires them for the completion of a specific project.
These workers are able to choose their own hours and can work from where they want, but they are not entitled to any of the benefits that a traditional full-time employee receives and do not get paid overtime for completing the project - no matter how many hours it takes.
Under the new bill in California, however, independent contractors would be treated the same as any full-time employee.
This means they would be entitled to the benefits that employees currently receive - such as vacation time, sick leave, overtime pay, minimum wage and workers’ compensation insurance.
Why you need a contingent workforce management strategy
It’s not yet clear how the bill will be implemented and what it will mean for companies that use independent contractors, but it does shine a light on just how important it is to implement a contingent workforce management strategy.
Managing a mixed workforce made up of full-time employees, freelancers, non-permanent workers and independent contractors can be complicated.
Ensuring you have a successful contingent workforce strategy implemented will not only ensure your organization is compliant with regulations in your area, but will help your company realize other benefits such as more visibility and control over workers, efficient hiring processes, greater cost management, access to top talent and much more.
How can HCMWorks help?
With our extensive knowledge in contingent workforce management, we have been providing managed services provider (MSP) services to clients all across the world - helping them find the right resources and fill growing talent gaps.
By leveraging the contingent workforce and implementing a successful contingent workforce management strategy that improves compliance, our innovative solutions will ensure seamless contingent workforce management - from requisition to payment, and every process in between.
Are you looking for more information on how HCMWorks can design a contingent workforce management program that will ensure your organization is compliant with current regulations, as well as receiving a wide range of operational benefits? Contact us today for more information.