In January 2021, the AB5 Law will come into effect. But are owner-operators and companies prepared for that correct classification of independent contractors? Many owner-operators will find it necessary to be joining work, having their own insurance and permits to transport cargo.
Many people do not agree with this new law and have been using all their resources to fight against AB5. Protests and political lobbying have been used to stop this law coming into force. Even with the law basically entering into effect, the new strategy of the companies is to obtain exceptions of the future law. Many companies have already started to fight for those exemptions.
Why do trucking companies want exceptions for AB5?
Because if they hire drivers as employees instead of independent contractors the financial consequences for the companies could mean an increase of between 20% to 30% on labor costs considering:
- Deductions for social security;
- Deductions for unemployment;
- Deductions for health care;
- Deductions for retirement;
- Disability insurance;
- Worker`s compensation;
- Dental Insurance
- Vision insurance
- Extra hours
How is current misclassification happening on transportation sector?
Misclassification is a known topic in the transportation industry. In regards to specific cases of the trucking companies in Long Beach and Los Angeles ports, approximately 13,000 truck drivers operate on a regular basis in these ports work and they are working as employees, but without receiving any benefits.
Allegedly, the rest are considered owner-operators, but the reality is that the real meaning of this classification is not always respected by the companies. That’s because the work’s model of getting paid for each job or load and fulfilling an independent contractor tax form at year-end may lead to abuses.
In the last 9 years, about 1,000 truck drivers have filed misclassification and wage theft claims. The amount of penalties and back pay of those claims is above $50 million. Making obvious that there are companies that prefer to pay fines than correctly classify their drivers as employees.
How are Owner-Operators facing AB5?
It’s important that every Owner-Operator have the possibility to choose if they want to work as employee or if they prefer to operate as independent contractors. Both possibilities have their pros and cons, but is up to them to determine the better option to work, according to their needs. To be able to choose, they need to have this option available from the trucking company’s side.