In California, the landscape for engineering consulting continues to be confusing and restrictive. AB-5, implemented in 2020, almost entirely precludes hiring entities from engaging engineering consultants. With the recent passage of Prop 22 and AB 2257, the situation remains largely unchanged except for some added complexity. Here is a breakdown:
Brief Recap: AB-5 is a law that was implemented in 2020 that uses a 3-point factor, known as the “ABC Test”, to determine if a worker qualifies as an independent contractor. These factors include if the worker has control of how and when the work is performed if the services the worker provides are outside the business’ core operations and that the worker customarily performs work on a consulting or independent basis.
Unlike the previous regulations, all these factors need to be met for a worker to qualify as 1099. This makes it difficult for businesses to engage workers as independent contractors.
Since being implemented, it has seen several amendments on which types of profession can be exempted from the ABC Test. Here are the most recent changes:
1. PROP 22
During the 2020 election, Californians voted in favor of Prop 22, a ballot measure that allows app-based companies such as Uber, Lyft and Doordash to classify their rideshare and delivery drivers as independent contractors. This new measure also included incentives that are not customarily given to 1099s such as guaranteed minimum wage and benefits for eligible drivers. Though this new legislation provides much-needed relief to app-based companies, it adds a layer of confusion if companies can engage independent contractors and how they are to be compensated.
2. AB 2257
Effective January 1st, AB 2257 primarily exempts workers within the creative and performance industry from the ABC Test, but more importantly, it provides exemptions for business-to-business relationships between 2 or more sole proprietors, given that both businesses can prove that they customarily provide services as 1099s, control their own work and utilize their own supplies. This may provide some reprieve to engineering consultants.
What does this mean for engineers?
Though Prop 22 and AB 2257 have provided broader exemptions from the ABC Test, engineers are still not exempted, unless they have a Professional Engineering (PE) or California professional license. Even with the AB 2257 “business-to-business clause”, the burden of proving a worker qualifies as an independent contractor is on the hiring entity. This makes it challenging for companies to engage with mechanical, electrical, and manufacturing engineers as 1099s.
If you are in need of engineering support and are unclear about the regulations pertaining to consultants, contact us today!
SoloPoint Solutions can provide you engineering resources with the same flexibility as engaging with independent contractors but still remain in compliance with state laws.