There is a general consensus that the gig economy is large and growing. One recent survey found that freelance income is approaching 5% of the US gross domestic product. However, the question of “Who is a freelancer?” has been hotly contested and risen to the level of legislative debate. In September, California passed a contentious new bill called AB 5, more commonly known as the “gig worker” bill, which will dramatically reshape the future of the independent workforce in California. This law goes into effect next month.
Cosmetology services are carved out as exemptions from the new law; however, freelance retail support, the lifeblood of the beauty industry, is not. Many beauty brands use freelancers to support retail doors because of the impact on the bottom line. Companies don’t pay payroll taxes or benefits for contractors, which can save as much as 20% of their costs, as noted in a 2016 UCLA study.
These beauty “gig workers” are the frontline, playing an integral role in creating experiences for consumers and making sell-through happen at the door level. They are the ultimate influencers. They are the face of the brand for that consumer, in that store, at that moment.
We asked Sonia Summers, who flipped the archaic field sales model on its head when she founded Beauty Barrage, her thoughts on the new California legislation. “This measure on employee classification not only aligns with my vision for the company, it’s the right thing to do. The fact that it’s now law, is inconsequential to me. I’ve actually taken this measure a couple of steps further by setting California as our baseline for labor and wage laws which are the strictest, but we’ve also decreased the hours needed to be considered a full-time employee, to 25, so that more people could qualify for benefits.”
The California bill, known as AB 5 goes into effect in January and will make it much harder for companies to label workers as independent contractors rather than employees. The law expands on the 2018 California Supreme Court decision in the Dynamex Operations West v Superior Court case. The ruling and the bill instruct businesses to use the three-prong “ABC test” to make the determination if a worker is an employee. To hire an independent contractor, businesses must prove that the worker (a) is free from the company’s control, (b) is doing work that isn’t central to the company’s business, and (c) has an independent business in that industry. If they don’t meet all three of those conditions, then they have to be classified as employees.
CEO of AllWork Glenn Laumeister shared that, “AB 5 has significantly increased the inbound requests we get from beauty brands who want us to handle all their payroll and labor compliance services for their in-store talent to ensure that they are 100% correct in how they are paying and managing their in-store teams. These laws are getting so complex now and changing all the time it is simply too much for most brands to keep up with.”
Hundreds of thousands of independent contractors in California will likely become employees under AB 5. This small change in status will have huge implications These workers will suddenly get labor protections and benefits that all employees get, such as unemployment insurance, health care subsidies, paid parental leave, overtime pay, workers’ compensation, and a guaranteed $12 minimum hourly wage.
“From our perspective we believe that the laws are already in place under the ‘ABC’ test which made it virtually impossible for beauty brands and retailers to classify their hourly workers doing sales, merchandising, events and other retail support functions as 1099 workers,” said Laumeister. “Under the ABC Test a worker is presumed to be an employee—and the burden to demonstrate their independent contractor status is placed squarely on the shoulders of the hiring company.”
He continued, “We also think in particular the ‘B’ section applies directly to the beauty and retail industry. This says that companies must prove that ‘the worker is performing work outside the usual course of the business of the hiring company.’ It seems pretty clear that in fact selling product to customers on the retail floor is directly related [to] the core mission of what both brands and retailers do, namely selling products and generating the majority of their revenue through in-person interactions.”
The AB 5 ruling formally ratifies the ABC test that was already in place, making it very important for companies to understand this new perspective by the state government that has now shifted the burden of proof to the employers. This law doesn’t mean brands and retailers cannot create and manage a flexible workforce. W-2 designation doesn’t require a fixed 40-hour-per-week schedule; it means that employers must pay certain W-2 benefits and comply with different labor laws than they would be required to do with 1099 workers.
“Stay tuned for more lawsuits from multiple sources,” predicts Sonia Summer. “You’ll have the class-action lawsuits from independent contractors filed against brands, retailers and/or their PEOs for employee misclassification and, you’ll have the departments of labor and the IRS suing for the same misclassification. It is going to be an absolute nightmare in an already litigious society.”
Summers continued, “Retailers and Brands alike can either roll the dice and hope this law doesn’t pass in other states (doubtful) or they will need to hire as W2 employees or work with an employee-based agency such as Beauty Barrage.”
Get good legal counsel, assess your risk, review your options, and make sure you have your bases covered for this seismic shift in the gig economy.
Photo: Flaunter.com via Unsplash