For instance , consider the following hypothetical : Susie Sunshine is the owner of a small , independent spa in rural California offering a menu of facials and massages , as well as retail . Her primary location was successful and she had the opportunity to expand to a second location . She weathered Covid but has been enduring staff shortages . She manages to cover the schedule by floating staff between the two locations that are close enough to be feasible , but far enough that it is not convenient for the employees . Seeing the additional strain on her already over-worked team members , Susie has decided her best business model is to switch from full-time staff to independent contractors . After reviewing her budget , she believes the change lets her spa save costs on employee benefits and allows her to shift her focus on employee satisfaction — she can offer a more flexible schedule , pay for employee continuing education , and otherwise incentivize and retain her workers . The spa ’ s current therapists and estheticians like this idea . If they travel between spa locations , they can use their mileage as a business expense . They have a flexible schedule to pursue other interests , and their licensing fees and continuing education are paid . So , what ’ s the problem ?
In September 2019 , California enacted legislation commonly known as “ AB-5 .” This law tests the relationship between employers and workers to determine if they are actually employees or independent contractors . The outcome of this test has long-term implications : Are the workers entitled to benefits like insurance ? Must social security and taxes be deducted from payroll ? Is workers ’ compensation applicable ? What regulations are effective
( labor laws , FMLA , wage and hour laws , etc .)? And who is liable for any acts or omissions done by the worker while in the course and scope of their employment ?
AB-5 , also found in California Labor Code §§ 2775-2787 , applies a three-factor test that essentially asks the following 1 : A . Is the worker free from the control and direction of the hiring entity in the performance of the work , both under the contract for the performance of the work and in practical nature ?
B . Does the worker perform work that is outside the usual course of the hiring entity ’ s business ?
C . Is the worker customarily engaged in an independently established trade , occupation or business of the same nature as the work performed for the hiring entity ?
Interestingly , services provided by a licensed esthetician in California are exempt from this ABC test and the employment classification determination is governed by a different , six-factor test 2 .
What does this mean for Susie Sunshine ? It means utilizing individuals who she thinks are independent contractors may not be her best choice if she is actually directing and managing them in a manner that lends to their classification as an employee . If the realities of her relationship fail the ABC test , she will be obligated to provide employment-based offerings and may be subjecting herself to various liabilities .
What if Susie was operating in Oklahoma , Kansas , New Mexico , Colorado , Wyoming or Utah , otherwise known as the states that make up the 10th Judicial Circuit ? In August 2022 , the United States Court of Appeals for the Tenth Circuit examined the Fair Labor Standards Act and assessed whether independent contractors were working
Experts have been called in to consider other questions : not only How do we find people to fill these roles within spa world ?, but How do we retain them so we don ’ t have to keep looking and expending resources ?
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