Just as quickly as we were heralding the coming of California’s Proposition 22, and how companies could take advantage of the new rules and regulations surrounding it, the recent shift in the political landscape has completely changed what companies who utilize an independent contractors workforce need to do to shore up their business model.
Although the Protecting the Right to Organize (PRO) Act was passed by the House of Representatives on Feb. 6, 2020, it was never passed by the Senate, which held a Republican majority. Even if it somehow did get past the Senate, it was extremely likely that Donald Trump would have vetoed the bill. Now, with the Senate being split 50/50, Kamala Harris holding the tie-breaking vote and Joe Biden has been a vocal proponent of the PRO Act, there is a very high probability that the question is not if the PRO Act will pass, but when.
What is the PRO Act and what do you need to do to prepare?
The PRO Act is very similar to Assembly Bill 5 (AB5), which was passed in California, in that it seeks to put more stringent regulations on who can be considered an IC and how you can interact with them. It looks to implement an ABC test, with the aim of converting ICs to employees if they do not meet all three criteria. The most difficult of these three being prong B, which states that companies cannot utilize ICs unless the worker is performing work deemed outside the usual course of the hiring entity’s business. The PRO Act, like AB5, seems to be very geared toward eliminating the IC model and being blatantly pro-union, as ICs are prohibited by federal law from organizing.
Converting ICs to employees is something every business should want to avoid, as it comes with increased costs and exposures. Most notably, the price of an employee is up to 30% higher than contracting with an IC, with many of those costs being front-loaded.
Although AB5 may not have directly impacted your business, as it was legislation passed in California, everyone will have to prepare for the PRO Act, as it is being voted on at the federal level.