Dental Practice Owners Need to Understand California's AB5 Law
On September 18, 2019, the ballot initiative, now known as the California Assembly Bill 5 (or AB5, for short), went into effect. It's probably one of the most essential pieces of employment legislation in California labor history — and one impacts the usual course of business of dentists, optometrists, veterinarians, and other healthcare practice owners in "The Golden State" for years to come.
The AB5 criteria determine whether the workers you hire in your dental, optometry, or other healthcare practices are:
- Independent Contractors or
While independent contractor or employee status may not seem like a big deal on the surface, it dramatically affects businesses' ability to hire or work with certain individuals to obtain the professional services they provide.
So what does this all mean? Well, if you get the classification wrong, expect hefty fines for non-compliance — up to $25,000 per violation!
We know what you're thinking: How do you know whether workers are employees or if they hold independent contractor status? It's not easy, right? In this updated guide, we clear up the confusion.
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What Is AB5, Exactly?
A quick history lesson:
California Governor Gavin Newsom signed AB5 into law on Sept. 18, 2019.
- AB5 originates from a California Supreme Court ruling in 2008 called the "Dynamex Decision."
Some people (and the media) refer to AB5 as the "gig worker bill," as it deals with the worker status of individuals working in a gig economy.
- The purpose of the law was to regulate companies like DoorDash, Uber, Lyft, and other rideshare companies that hire large numbers of gig workers; However this law does impact workers in all industries
AB5 also addresses the wage orders and worker status of full-time gig workers in other types of work and professional services.
- Currently, AB5 only impacts the labor law and payroll taxes of businesses in California, but other states could pass similar laws in the future, as freelance and independent contractor work continues to grow.
AB5, in the simplest terms, is a labor code that reclassifies millions of workers with independent contractor status as employees of your company. And these employees have the same rights as all your other employees.
It’s also important to note that most positions in healthcare practices will not qualify for the independent contractor classification. Individuals that are hired as temps also do not qualify for independent contractor status as they have to follow direction and guidance from the practice. Having to follow direction and guidance from the practice automatically disqualifies temps from independent contractor status, not to mention the fact that they wouldn’t pass the ABC test.
Overall, AB5 is the law while the ABC test is the criteria that practices would use to assess what classification is appropriate.
How Does AB5 and the ABC Test Work?
AB5 uses the "ABC Test" to determine whether workers are independent contractors/freelancers or employees of a company:
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 fact?"
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?"
Here's the kicker: AB5 presumes all workers are employees. It is up to the business - aka your dental, optometry, or other healthcare practice - to prove the status of workers by applying the ABC Test. A safe practice is to classify all your workers as employees, and if you do choose to classify someone as an independent contractor, consult with HR and/or legal counsel to assist with documenting the details of the assessment and how they arrived at the classification.
With HR for Health, practices can save important documents by utilizing our Documents feature. You can create folders and save docs, keeping you prepared with easily-accessible docs in the cloud should you ever get audited.
NOTE: Employers in California must satisfy all three parts of the ABC test.
What Are the Problems With AB5?
With everything else going on right now, it's difficult for healthcare employers to satisfy the three elements of the ABC Test, particularly part “B” of the ABC test. Plus, if the law considers workers "employees," employers might have to provide benefits to more people. These include:
- Social Security benefits
- Health insurance
- Disability insurance
- Paid sick days
- Holiday pay
- Death benefits
- Retirement benefits
- Workers' compensation
- Minimum wage status
Many of these benefits are discretionary and not mandated by law. However, consider that a misclassified worker that would have been eligible for benefits, had they been classified as an employee, may potentially be owed payment on those discretionary benefits as a way of ensuring consistent application of the benefit and to avoid claims of discriminatory treatment. Misclassifications can also prove costly because of back pay that may be owed for missed overtime hours, pay for certain situations like business expenses, benefits that would have been owed, etc.
Are There Exemptions to AB5?
Yes! Though AB5 impacts most employers in California, there could be exemptions for:
- Physical therapists
- Other medical professionals
While there are exemptions to the AB5 law, practice owners should tread carefully as exemptions and classifications can change often and unexpectedly. Therefore, the employee classification is the safest option for practice owners in situations where employment classification could go either way as California tends to be in favor of the employee.
When a court determines the ABC Test does not apply, a different classification called the "Borello test" will apply. It focuses on how much "control" a company has over these workers. For example:
- Whether workers are engaged in a business/occupation that is different from the employer, such as a Certified Public Accountant (CPA) that provides services to an optometry practice.
- Whether workers engage in work that is a regular or integral part of the employer's business.
The Borello test is a multi-factor test with 13 stipulations, and the classification should be approached such that you are assessing the extent to which the criteria are met. With that being said, medical employers should enlist the services of an HR professional like HR for Health to help you make sense of the law. Otherwise, you could face expensive penalties for non-compliance. Click here for a free consultation.
It might be confusing, but AB5 (and the subsequent Borello test) is important under California law and for all healthcare practices in California. To stay compliant with AB5, work with HR for Health, who will keep your health care practice running smoothly without being served a preliminary injunction. It's always best to avoid having to work with an expensive law firm to stay compliant with AB5 regulations or to clear up any misclassification of labor code violations in a court of appeals. An easy solution to ensure your practice always stays compliant with the Department of Industrial Relations, and other regulatory agencies, is to invest in HR for Health software.
How HR for Health Can Help Your Health Care Practice
HR for Health is an all-in-one HR software provider dedicated to helping the dental, optometry, veterinary, and healthcare industries. Our business model features a human resources platform that provides all the tools practice owners need to manage payroll, timekeeping, 401(k), and more with total integration and ease. With HR for Health software you can also easily store all supporting documents related to the ABC test through the documentation feature.