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As we look into the second quarter of 2020, the question that remains on many business owner’s minds is: will the rules outlined in AB-5 stand in the face of coronavirus? Concerns around the new criteria for worker classification outlined in Assembly Bill 5 were common at the start of the year, and many business owners chose to reclassify large portions of their workforce as W-2 wage earners rather than their previous classification of a 1099 independent contractor.
And then the Coronavirus outbreak occurred.
With the social distancing, quarantine, and shelter-in-place rules that have been put into place to reduce the number of cases from the novel coronavirus, businesses have laid off large percentages of their workforce. In the past week, 4.4 million Americans have filed for unemployment. When all of this is over and businesses reopen, can the California Employment Development Department really audit businesses using the strict independent contractor classification rules set forth in AB-5?
The effects of COVID-19 will create a new reality for everyone.
One thing is certain during this uncertain time, the world of work will be transformed as we all try to understand this “new normal”. While many workers are struggling to implement home-based work regimens, others are discovering the benefits of a flexible schedule and more family time. When business resumes, there is sure to be a shift in the expectation of many employers. The shift and the slow restart to the economy that will accompany the recovery post-coronavirus, many businesses will likely choose to hire part-time contractors as opposed to diving into the commitment of a full-time W-2 employee. And while workers will have a different set of criteria they desire in order to go to work in an office again, business owners will also have choices. Business owners will have to be wary of how they choose to spend money as they work to restart what has come to a halt during the outbreak.
Many business owners will not be able to employ W-2 workers following to reopening of the economy.
The US economic recovery may take years after this downturn and the massive unemployment caused by the COVID-19 crisis. Once employers start creeping back into a situation that resembles their previous business, would CA EDD really leap in and audit that business? Yes, if an employer categorizes their independent contractors incorrectly, CA EDD will audit and under AB-5 they have every right and a responsibility to do so. Take extra caution and attention to classifying your employees in the future, as to avoid any potential EDD audits.
This post was reviewed by our team of accounting and financial experts. TGG’s mission is to make business owners’ lives better through excellent financial management. We strive to provide the most up-to-date and objective information on accounting-related topics so our readers can make informed decisions based on factual content. All posts undergo a review process with at least one member of our Leadership Team to ensure accuracy.
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Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
