State says this type of worker can be an independent contractor

Here’s a recent development on worker classification for CFOs: California now allows more drivers to be treated as independent contractors.

That’s all thanks to Proposition 22, or the “App-Based Drivers as Contractors and Labor Policies Initiative.” It says app-based “network companies” that provide ride-share services (e.g., Uber, Lyft) and food delivery services (e.g., DoorDash) can treat their workers as independent contractors, as long as they adhere to certain criteria.

Specifically, if a network company wants to classify drivers as independent contractors, it can’t do any of the following:

• provide dates, times or a minimum number of hours during which drivers must be logged into the app or platform
• require drivers to accept any specific ride-share service or delivery service request as a condition of maintaining access to the online app or platform
• restrict drivers from performing ride-share services or delivery services through other network companies (except during engaged time), or
• limit drivers from working in any other lawful occupation or business.

What about drivers’ benefits?

As you know, the worker classification of drivers has been a long-debated issue. For the Golden State at least, this new reg definitively clarifies that network companies can treat workers as independent contractors. As a result, they don’t have to provide these workers with certain benefits, like health insurance.

But that doesn’t mean network companies are totally off the hook. The law requires them to afford certain benefits and protections not typically offered to traditional independent contractors, like:

• a healthcare subsidy consistent with the average contributions required under the Affordable Care Act
• a new minimum earnings guarantee tied to 120% of the minimum wage with no maximum for the time that a driver is “engaged” (i.e., on a trip with a passenger or on their way to a pickup)
• compensation for vehicle expenses (30 cents per engaged mile versus the IRS mileage rate of 57.5 cents per mile for employees)
• restriction from working more than 12 hours in a 24-hour period (unless the driver’s logged off for an uninterrupted six hours)
• occupational accident insurance to cover (at least to some extent) on-the-job injuries, and
• protection against discrimination/sexual harassment and anti-harassment education requirements.

Complexities continue

For CFOs, this new law shows states are actively trying to clear up some uncertainty regarding worker classification. And on the federal level, simplified guidance from the DOL is currently in limbo under the new Biden administration.

That said, as much as states and feds try to lessen uncertainty regarding independent contractors, as you can see from the specifics outlined above, classification keeps getting more nuanced and complicated. Both lawmakers and companies may have to rewire their practices – it’s not always as simple as “employee” or “contractor.”

The best thing you can do is stay abreast of changes. Keep HR and Finance alert, so they too can assess your own worker relationships and ensure compliance with old and new laws alike.