Assembly Bill 5 (AB-5), signed by California Governor Gavin Newsom, will become effective on January 1st, 2020. This new “Gig worker” law is aimed to limit the classification of workers as independent contractors by businesses, rather than employees. According to Allterra Group’s recent 2-minute survey, half of respondents have their business organized as single owner or sole proprietorship. The way that appraisers classify themselves when completing the work will have significant changes. For more information, read the article written by Peter Christensen and Kim Perotti.
For appraisers working as independent contractors, the consequences can include the degradation of independence. Appraisers need to become incorporated in order to be eligible to do business with AMCs under these new laws going forward. The Appraisal Buzz recommends they consult with an Attorney and a CPA when going through this process. This new law will alter taxes, not only for the appraiser, but for the companies hiring them. Appraisal Management Companies (AMCs) and Appraisal Firms in California that employ independently contracted appraisers will also be impacted. With new laws comes new risks, new forms, and new amendments to how things are currently completed.
The decision came from Dynamex Operation West, Inc. v. Superior Court. The court held that California’s Industrial Wage Orders, which set overtime pay requirements for non-exempt employees, the firm bears the burden of establishing that the classification is proper under the so-called “A-B-C test.” This issue applies to more than just California – there is legislation in place in many other states that have the same effect. In order for the company to treat the workers as contractors, the “A-B-C test” needs to be passed:
- That the [appraiser] is free from the control and direction of the hiring firm in connection with the performance of the work and in fact; and
- that the [appraiser] performs work that is outside the usual course of the firm’s business; and
- that the [appraiser] is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Meeting any of these three could be difficult for some companies since California laws haven’t been as restrictive in the past. There are several exceptions that are also in place, for example, the “business-to-business” exception. This exception requires several items to be satisfied, such as “The AMC must contract with an actual ‘business’ (sole-proprietor, corporation, LLC, partnership, etc.) to perform the appraisal service, rather than contracting with individual ‘workers’ (i.e. individual appraisers).”
This is just one of the items that needs to be satisfied by AMCs for this specific exception – overall, AMCs will need to rewrite their contracts and update their practices on certain agreements to become compliant with this new law. For more information, read the article written by Peter Christensen and Kim Perotti. Make sure to take our quick survey on your business model so that you may better understand how this new law could impact you in the industry.
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