Tag Archive for: Hiring Regulations

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As many companies work to reorganize their business model in light of COVID-19, hiring a 1099 to replace your full-time employees might be a great solution.  However, there are a few things to consider before taking the step in hiring these workers. The passing of the new AB-5 regulations in January 2020 created more regulations to consider. Here are the classifications to ensure that your employee is listed as an independent contractor rather than a full-time employee. 

First, the IRS uses the “control and direction” test to identify is the employee is free from behavioral, financial, and relationship control. Then they look at the employee is performing work that could be done outside the core functions of the company. Lastly, the AB-5 ensures that the employee is conducting their work along with the work they are doing for the company. 

As the new AB-5 regulations take effect, there are a few exceptions to the independent contractor’s rules. Occupational exemptions, like doctors, lawyers, and real estate agents are excused from the AB-5 rules. Other professional services are also able to be considered independent contractors, such as marketing professionals, freelance writers, and barbers/ cosmetologists. There are a few qualifications they must abide by to be considered, these include:

They must have an established business location.

They must obtain the required business or occupational licenses.

Their rate must be negotiable.

They can set hours outside of project hours.

They must have other work with different companies.

They must use discretion and judgment on their work.

Other exemptions from AB-5 include, the referral agency exemption, which includes home cleaning service, dog grooming, graphic design, and other service listed here. The referral agency exemption also much adhere to a few qualifications including:

They must be established as a business entity.

They must be free from the control and direction of the referral agency.

They cannot be penalized for refusing service to clients/ contracts from companies.

They are allowed to work with other companies and have separate their clients.

Their services are under their name rather than the referral agency.

They set their prices, set their hours, and use their own equipment.

They must hold their business licenses and have registered for business tax.

The last two exemptions under AB-5 include the construction industry exemption and the narrow business-to-business exception. The construction industry exemption includes special regulations for subcontractors within the construction industry. With the narrow business-to-business exception any work done must be done by a sole proprietor, a partnership, an LLC, or a corporation. For more information on the exceptions to AB-5, here is a detailed list of requirements and qualifications for each category.

With all of these potential options in hiring a 1099 employee, we can help you figure out just what will work for your specific company. Contact us to see exactly how you can change your business model to allow you to hire independent contractors and cut costs during these uncertain times.