Employee or Independent Contractor?

California workers are setting up more LLCs after AB5 

From Quartz, Michelle Cheng reports on a increase in applications to form limited liability companies (LLCs) in California in response to AB5. She described it as a workaround when AB5 creates an exception to the ABC test adopted by the California Supreme Court for bona fide business to business relationships. Instead of working around AB5, workers are taking advantage of AB5 to avoid the draconian effect of the California Supreme Court decision in Dynamex. Michelle writes:

One sign of the resistance? There’s been a big increase in applications to set up limited liability companies, or LLCs. By forming these business entities, workers can retain their independent status—and potentially avoid losing work.

Many of the workers who are seeking workarounds are in traditional independent-contractor roles, working as paralegals, consultants, or in public relations. (Truckers have already won an exemption from AB5; the big ride-hailing and delivery companies have not, but Uber, Lyft, and DoorDash have pledged $90 million to pass a ballot initiative that would essentially exempt them from the new law, which went into effect on Jan. 1.)

Forming an LLC is rather straightforward. Individuals can register their business online, and an LLC has fewer formalities than other business structures, like Subchapter S corporations. In California, the filing fee to form an LLC is $75, and then there’s the annual $800 franchise tax—the latter is a lot less in other US states.

“If you want to continue to at least try to be an independent contractor in the state of California, you need to go get a business license,” says Tricia Legittino, a Los Angeles-based partner in the litigation and employment groups at the law firm Frankfurt Kurnit. “It is maybe the only exception that they can qualify for under AB5.”

Read the full story at California workers are setting up more LLCs after AB5 — Quartz

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