In California, Assembly Bill 5 was recently enacted, which radically changes how independent contractors are defined in the state. Under this new law, workers are considered independent contractors only if their work is outside of the usual work required by the company. Under this definition, a worker is an employee if the business exerts control over how the worker completes their tasks or if the work is considered part of the company’s normal business procedures. 

This has left many businesses confused on how to determine whether a worker is an employee or a contractor. Here’s why it matters:

For your employees, you must withhold income tax and a portion of Social Security and Medicare taxes. As an employer, you’ll be required to give your employees a W-2 showing the amount of taxes withheld from their payment that year. 

For your independent contractors, you must give them a 1099 to report what you paid them. You don’t withhold taxes from your contractors, as they will be responsible for paying their own income taxes. Also, because your workers are independent contractors, you are not liable for their actions. 

Assembly Bill 5 has made it difficult for employers to treat their workers as independent contractors. If you’re wondering how this law affects you, consider a consultation with a qualified lawyer. If you need help with payroll, 1099 requirements, or any other question regarding payment to your employees, don’t hesitate to contact us.