Changing business models and the emergence of entirely new business models has caused the growth of the independent contractor employment class. There’s always been a lot of back and forth about what to do with this class tax-wise, and in California AB5 was the state government’s answer. 

 

The problem is this law doesn’t actually bode well for many businesses whose business model relies partly or entirely on independent contractors. 

 

The law of unintended consequences definitely applies here. 

 

Businesses won’t be able to hire an independent contractor who will take on the responsibility of paying taxes on their own. There are many problems this will cause to the business, putting its very existence at risk. 

 

Here’s the truth, an AB5 style bill could be coming to your state next. What does AB5 mean for businesses and what issues will it cause? In this episode, I talk about why AB5 should concern all of us.

 

3 Things We Learned From This Episode

Why California wanted AB5California is the biggest tax state in the union, so they are concerned with maximizing tax income. Putting AB5 in place will actually allow the state to earn more potential tax revenue.  

 

How AB5 Will Impact Businesses That Rely on Independent Contractors If someone is classified as an independent contractor, the business has no responsibility to make sure payroll taxes are withheld. If they are classified as employees, this means the business takes on that responsibility which may cause irreparable harm to the business.

The unintended victims of AB5AB5 was created with businesses like Lyft and Uber in mind, but the unintended consequence is that it will affect other small businesses that are actually reliant on independent contractors for their very survival.