AB5 and Its Repercussions on the Trucking Business
AB5 and Its Repercussions on the Trucking Business
If you are a trucker and own a trucking company in California, you might be aware of the protests throughout the state owing to the execution of Assembly Bill 5. Let us tell you a little bit more about this law and its provisions.
Truckers in California face challenges due to Assembly Bill 5, or AB5, which was passed by the state legislature earlier this year. This has an effect on both independent contractors and employees, as well as on trucking companies of different sizes and their owner-operators.
Every owner-operator, including carriers, shippers, and brokers, was required by AB5 to pass an ABC test in order to be recognized as an independent contractor. There are three steps of verification for this test:
- On paper and in practice, the worker should not be under the control of the firm.
- The employee should not be expected to execute any duties directly related to the recruiting company’s primary business goals, and only those tasks that are tangentially related should be assigned to them.
- It is essential that the employee have a separate business entity that is related to the work they will be doing for their employer.
In order to qualify as an independent contractor, an employee must satisfy each of these three requirements. If not, the employee would be regarded as an employee of the hiring firm.
A Look at How the AB5 Rule Will Impact Trucking Companies
Despite the belief of many trucking businesses that Assembly Bill 5 would grant them exemptions, this was not the case. As a result of AB5, nearly two-thirds of owner-operators were no longer considered independent contractors as a result of AB5. This has ramifications for both them and the businesses they serve.
For the most part, trucking businesses have encountered challenges in their contracting attempts because of condition B. A trucking company may recruit independent contractors to make daily deliveries. This is a possibility worth considering. However, the AB5 regulation requires that all of the company’s drivers be counted as employees, as their jobs are directly related to the company’s primary business goals, namely transportation and logistics. Because administrative fees, health and dental insurance, and other benefits must be factored in, hiring contractors becomes more expensive when they are treated as employees.
Many companies are seeking new ways to solve this issue. Owner-operators who used to work for the big carriers as self-employed contractors are now being offered relocation packages by some of the larger carriers. You can sell your vehicles and join the company as an employee, which is a radical departure from how you used to operate. This could be a game changer for the transportation sector.
AB5 – Effective from January 1, 2020
The American Supreme Court rejected certiorari on AB5 on June 30, 2022. As a result, the over two-year-old injunction against AB5 will be lifted, and AB5 will become a California law effective January 1, 2020.
As a result of the Supreme Court’s denial of certiorari, California’s AB5 will go into effect on January 1, 2020. A California resident who is an owner-operator of a trucking company has to make major and immediate changes in the way they run their business under AB5.
What is the definition of misclassification in the trucking industry?
According to the labor laws, misclassification is a violation of the full-time employee’s rights in terms of wages, taxes, and other obligations.
If the laws are to be followed, employers are expected to pay the federal and state Social Security taxes as well as payroll taxes, unemployment insurance taxes, and workers’ compensation on behalf of their employees. Independent contractors, on the other hand, are the only ones responsible for taxes and pay if they are hired to do the work.
As a result, some trucking companies have been misclassifying their personnel as independent contractors in order to avoid these duties and obligations. In the port trucking profession, anecdotal evidence reveals that even full-time truckers are forced to acquire and maintain luxury automobiles at a tremendous personal cost, while being denied basic jobless benefits. People say that AB5 is a big reason for the rise in these kinds of activities.
How the trucking sector may prevent misclassification
In other words, they should make every effort to prevent misclassification, even when it occurs accidentally. Here are a few ideas to that end:
Make appropriate lease agreements
If a trucking company relies on independent contractors to carry out their daily tasks, this will be their first line of protection. Litigation is less likely if it is clear that the worker is an independent contractor and not an employee.
Select your coworkers carefully
Make sure the businesses you work with are serious about misclassification.
In order to ensure justice, you should educate both your employees and independent contractors about the disparities in their roles. As a result, more people will be aware of the issue and be less confused.
Vineyard Brokerage believes that although laws are constantly being amended and replaced, the trucking sector must continue to operate in spite of these changes. Independent contractors and owner-operators need to be protected from unjust treatment. The key is to strike a balance so that these independentminded and free-spirited Americans aren’t robbed of their independence and initiative as a result of this shift.
We, at Vineyard Brokerage, believe that our clients should get the best service as has always been the case and they should not feel any crunch due to the implementation of AB5.
With you every mile of the way!