I have continued to follow the story, and it appears as if everything we discussed in September is incorrect and doesn't apply to January.
All 1099 employees in California must be reclassified as W2 employees on January 1. You can continue to support your clients as an independent contractor if you can pass the "ABC Test".
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The worker performs work that is outside the usual course of the hiring entity's business.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Most freelancers and independent consultants will not be able to pass the #2 of the ABC test. There are exceptions to the law, but most of them are for doctors and certified professionals, not for project managers like me. The 34 limit rule for writers is an exception that was supposed to be fair to writers, but this is why California writers are being let go by their clients in large numbers this week.
Upwork's policy is that worker classification is the responsibility of the Clients. So, clients who want to hire freelancers who are based in California that cannot pass the ABC test above can pay Upwork to employ the freelancer through Upwork Payroll and the freelancer will receive W2 income, not 1099.
I have a feeling that clients on this platform will just start to hire non-Californians.
I have a meeting this week with an employment lawyer to understand this better, as I have mentioned, most of my clients are local and word of mouth and I need to understand this. I spoke to my CPA about this earlier, the state hasn't issued guidelines about how to enforce the new law, and his feeling is that we can continue with business as usual as the state will initially look to target the big Silicon Valley firms for enforcement and one-person shops like most of us will only be noticed when we file a complaint against an employer.
I will continue to update this as I learn more.
