It can be scary to hear about new laws that affect your line of work. Often this requires reconfiguring your business to be more compliant and making sure your salon is operating its business lawfully.
In this article, we will go over the Dynamex law and what you can take action on to make sure you understand the changes in their entirety. Note that this law only applies to California salons for now, and if you operate your business in a different state, be sure to check your Labor and Wage laws for more details.
Historically, there has been a misclassification of workers in the industry. Misclassification happens when managers in the industry are hiring workers without paying the price (usually in the form of taxes and wage compliance).This is typically because workers in the industry have managed to get away with not being taxed or not paying for taxes. In most cases this means that workers are unfairly bearing the costs for this — rather than salon owners.
In response to this, the law lays out an ‘ABC test’. This new rule has three conditions that require one to be classified as an employee.
We recommend that you apply this ABC test to each employee / worker / stylist / receptionist in your salon in order to ensure your salon will face no troubles in the future.
Here is the ABC test, straight from the ruling:
“(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact (B) that the worker performs work that is outside the usual course of the hiring entity’s business; (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”
If you need additional help interpreting this ABC rule to your specific use case, you can contact the California State Department Wage and Labor Department.
No More Independent Contractors in California
The bottom line of this ruling is that it will change the landscape for how independent contractors are classified. It will make it impossible for hair salons to classify their workers and stylists as independent contractors as they have done before.
This is because the ABC rule makes it almost impossible for California Hair salons to meet both the requirements and classify their staff as independent contractors. Dynamex theory illegalalizes booth renters in the state of California for most circumstances. How you ask? Most salons will not be able to meet portion “B”, which requires workers to perform work that is “outside the usual course of the hiring entity’s business.
Again, the law won’t affect rental salons unless a salon owner has INCORRECTLY been classifying the renters as independent contractors.
Definition of a renter: In a proper, legal rental salon, renters collect their own money from the clients and they pay the landlord rent checks for their statements. Additionally, the landlord receives 1099s from their tenants yearly to mark the rent the tenants have paid.
Definition of an independent contractor: An independent contractor is compensated by the hiring entity (the person/business who they have a work agreement with). This is the same hiring entity that issues the 1099 to the independent contractor. Furthermore, the hiring entity must be able to prove the independent contractor meets the standards set forth in the ABC test.
Main differences between renters and an independent contractors
Here are the key differences between renters and independent contractors:
A renter signs a lease, similar to in an apartment, which gives them the right to conduct business in the rental area. They mainly run their business without any control or interference from landlord
Independent contractors sign work agreements and are responsible for attaining a result in accordance with an agreement that is set up by a hiring entity and the contractor
The problem was that we frequently saw salons misuse the classification because they would have independent contractors in their salons and controlling them like employees, which in theory goes against the definition. They would do this to be exempt from other fees/additional money, such as income and employee taxes they would have had to pay if they are hiring employees.
It is a good idea to know how your salon will change before the law is enacted so you have the correct procedures in place to save you from a shakeup. The ABC test will determine everything and contains all that you need to know.
It will also add more stringent enforcement of the definition of independent contractors vs. renters. This will allow for more fairness in regulations and will make sure everyone is being taxed fairly as they should.