As of January 1, California enacted TWO new laws that will have a trickling effect on business owners big and small, across the entire country.
I touched on the first one before the holidays - AB5, which is the law that changes how fitness and health + wellness professionals should be paid.
The second law is known as the California Consumer Privacy Act, and it seeks to protect consumers (like YOU) from companies using and selling your personal information online. (Think about the last time you were talking about ____, Alexa overheard you, and next thing you know Google ads are popping up nonstop about that exact topic).
Both of these topics are so crucial in how we run our businesses. Even if you don’t live in or do business in California, chances are your state is next to adopt these changes too (California is a cool trendsetter like that).
Today I’m breaking down both of these laws into simple, digestible explanations so you can really *get it* and you can ensure your business is protected.
And while we’re here, you can download my FREE Interactive Workbook: AB5 – Understanding + Navigating California’s New Laws for Classifying Workers. This interactive workbook teaches you everything you need to know about:
paying your workers
paying your taxes (gotta do it!)
Ready to get learning? Grab you coffee, a notepad and pen, and let’s do this!
AB5 AND CLASSIFYING WORKERS
What Does This New Law Say?
AB5 is the new law that states all workers are presumed to be employees, and businesses are limited in classifying workers as independent contractors.
In order for a worker to be properly classified as an independent contractor (and be paid all cash, without taxes withheld), the business must demonstrate via 3-part test, called the ‘ABC Test’, that the worker is not an employee.
Why Does It Matter?
In general workers are classified as either an employee or an independent contractor. The distinction is important because 1) employees are entitled to greater labor protections, and 2) business must pay payroll taxes for employees and not for independent contractors.
When businesses classify workers as Independent Contractors, they do not have to pay payroll taxes, rather the worker pays those taxes. (A further explanation of this, including great examples demonstrating with actual wages in shown on page 8 of the Workbook). This means the businesses pay less in wages and workers pay more.
This also means that workers aren’t entitled to employee benefits such as sick days, worker’s compensation insurance (in case they get injured on the job), rest breaks, and reimbursement for work-related expenses.
Knowing these 2 key facts that negatively impact independent contractors, the state of California enacted this law to state that almost every worker is an employee, thus ensuring them protections and benefits, and ensuring fair wages and taxes.
How Do You Prove Independent Contractor Status?
Businesses are upset about being required to classify their workers as employees as it creates extra add and increases expenses. As such, California says that workers CAN be independent contractors if they can pass the ‘ABC Test’ by meeting all three of the below criteria.
A. The worker is free from control and direction by the business in performance of services, both in the scope of their work and how the work itself is done;
B. There worker is performing work outside the usual scope of business of the hiring company; and
C. The worker is customarily engaged in an independently established trade or occupation.
Most fitness and health + wellness professionals are failing part A and B. Instructors, trainers and coaches provide instruction to clients, which is the exact scope of the business as the hiring studio. Additionally, most professionals are teaching + training on a regular timeline, based on the studio’s brand, which demonstrates that they are in fact controlled by the business in the time and manner of their work.
See pages 12-13 of the Workbook for a further breakdown of each part, as well as a Workbook your business can adopt for hiring and tax purposes.
The Renter Exception
If a studio rents time, space and equipment to instructors, trainers or bodywork professionals, so that they may train or work with their own clients, the rules of AB5 do not apply because the worker is actually a RENTER of the business and not a worker of the business.
CALIFORNIA CONSUMER PRIVACY ACT
The CCPA is the largest data privacy law in the US (there is currently no federal laws re: data privacy!) and as California is a trendsetter in consumer-driven laws, it’s expected that numerous states will follow suit this year.
What is the CCPA?
The CCPA requires companies doing business in California to tell people what information they’re collecting about them, allow California residents to request that their personal information is not sold, and also request that their personal information is deleted.
“Doing Business” means that the company has either a physical presence (like a store) or an online presence with resident customers (such as an e-commerce website, social media platform, or any website used by a CA resident).
The CCPA gives California residents 5 basic rights with respect to their online privacy:
1. The right to know what personal information is collected about them. 2. The right to know whether their information is sold or disclosed, and to whom 3. The right to say NO to the sale of their personal information. 4. The right to access their personal information 5. The right to equal service and price, even if they exercise their privacy rights.
For a further breakdown of each of these 5 rights, SUBSCRIBE TO MY WEEKLY NEWSLETTER, and this Thursday be ready to get a complete CCPA Breakdown in Your Inbox.
What Does This Mean For Your Business?