06 Nov What the AB 5 Law Means for In-Home Health Care
Your babysitter, housekeeper and caregiver are your employee, if not specifically someone else’s employee providing services to you through a full-fledged and licensed employer model business.
The California legislature continues to make the hiring of independent contractors more legally treacherous. Think of this as the reaction to the rise of Uber, Lyft, and Door Dash, all three of whom have pledged millions of dollars to fight a new law, AB 5.
Under AB 5, which goes into effect on January 1, 2020, all workers are defined as “employees” in California, with very limited carve outs. The legislature wrote that its intent “in enacting this act is to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law…”
Attorney Elizabeth Murphy recently held a webinar for home health providers explaining what AB 5 means for our industry and others.
She said basically, under AB 5, anyone hiring someone else for services must be deducting payroll taxes, providing worker’s compensation insurance, paid sick leave, unemployment and applicable health benefits, protections against discrimination and harassment, etc.
Or people can hire services through a legitimate business that’s handling all of those employer responsibilities. Services known as Domestic Referral Agencies, or DRA’s, must follow very strict guidelines to make sure they are not employers. That leaves the responsibility on the client, and AB 5 leaves no wiggle room for the clients to get out of that responsibility.
Some professions were excluded, such as doctors, dentists, veterinarians, licensed real estate agents, lawyers, architects, engineers, private investigators, accountants, licensed estheticians, manicurists, commercial fishermen and newspaper delivery people. The exception doesn’t mean that they are automatically independent contractors, but that a less stringent test than AB 5’s three part test can be used to determine their status.
AB 5’s three part test, called the ABC Test, says someone is only a true independent contractor if they meet all three of these standards:
- Free from the control and direction of the hiring entity,
- Performing work that is outside the usual course of the hiring entity’s business,
- The person is customarily engaged in an independently established trade, occupation or business.
A homeowner hiring a licensed plumber to do repairs does not become the employer under the rules above. However, a babysitter is told when to arrive and leave and how to care for the kids; a caregiver is given a schedule by a family and controlled, etc. So payroll taxes and employment benefits apply.
In fact, AB 5 specifically names in-home employees in the new rules; “including the care and supervision of children, or whose duties are personal”.
Violating the rules can lead to civil litigation and expensive demands for wage and hour corrections. There are also criminal penalties, $5,000 to $25,000 per violation depending on the severity.