The Dynamex decision and a new bill in California (AB51) threaten the way independent contractors work. If signed into law this will affect all industries and fields with independent contractors including travel advisors, writers, graphic designers, translators, interpreters. It will affect just about anyone who chooses to work for different agencies. This will not affect companies that contract for service outside of their same line-of-business.A little bit of background information may shed some light into how this came about. In the past, S.G. Borello & Sons, Inc. v. Department of Industrial Relations held that the primary factor in determining contractor status is that “the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The Dynamex Operations v. Superior Court decision overturned that standard and caused confusion in California among employers and workers alike, especially with those who want to keep their contractor status. This decision makes it more difficult to designate workers as independent contractors unless those professions are specifically exempted.
Under the “ABC” test, a worker is presumed to be an employee unless the employer can show all of the following:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The worker performs tasks that are outside of the usual course of the hiring entity’s business.
- 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.
Although all three conditions must be met, our main concern as freelance interpreters is the second test or the “B” portion. Language Service Providers (LSPs) offer interpreting and translation as a service, and so does the freelance interpreter. While an LSP can contract with a programmer as an independent contractor because it is not the same business as the LSP, contract interpreters working for an LSP may be classified as employees under the new law. The unique operation of LSPs means every contractor is now an employee of any LSP they accept work from. Dynamex creates the legal presumption that interpreters are employees because they are in the same line of work as the agency.
Assembly Bill 5 was created to codify the Dynamex ABC test and exempt certain professions from the Dynamex test. The bill specifically exempts professions such as doctors, investment advisors, insurance agents, real estate agents among others. This Bill was created with the intent to protect workers who are misclassified for the purpose of avoiding benefits and employment-related taxes. But without a significant change or exemption for Interpreters, it will become part of the California Labor Code. Even worse, if this passes and signed into law it may be retroactive. This will create tax liability problems for contractors and agencies.
Whether you’re an employee or an independent contractor, self-employed business owner, or operating outside of California, this should concern you. As the saying goes, “As goes California so does the rest of the country.” Here are some considerations we should be concerned about as independent interpreters and translators:
Most interpreters and translators work in the private sector because we love our freedom to choose what type of work we want to do. As an employee, this freedom goes away. The employer dictates the type of work, the hours of assignment, etc. Once an employee is designated, the employer has the control.
Interpreting is an as-needed occupation and the history of interpreting as a profession is resistant to full-time, daily employment. When an interpreter is not working, they may not qualify for unemployment benefits. Is an employee interpreter required to remain available for an employer even when there is no work? The freedom as a contractor disappears under an employer’s control.
Benefits will not be created by a change from contractor to employee status. A desire to become an employee for the sake of benefits is also not a reasonable expectation. Interpreters working for multiple LSPs would rarely qualify for benefits. Employers are not mandated to provide health insurance if they have less then 50 employees and part-time employees still would not qualify for many benefits. Wages would likely be driven down because there are mandatory deductions which increase the employer’s cost by up to 25%.
These are the mandated benefits employers are required to provide their employees. Anything outside of this is optional.
- Social Security, Medicare, and Federal Insurance Contributions Act (FICA) – FICA is a federal payroll (employment) tax used to fund Social Security and Medicare. Both employees and employers are required to contribute to these funds. Employers are required to withhold Social Security tax at 6.2 percent of gross compensation, up to the Social Security Wage Base ($127,400 for 2018). Employers must also withhold Medicare tax at 1.45 percent of gross compensation, and an additional 0.9 percent of compensation in excess of a threshold amount based on the employee’s filing status if an employee’s compensation exceeds $200,000 (there is no wage base for Medicare). Employers must also match 6.2 percent for Social Security, up to the Wage Base and 1.45 percent for Medicare. Employers do not have to match the additional 0.9 percent.
- Unemployment insurance – Assists workers who lose their jobs.
- Workers’ compensation insurance – Gives financial support to people unable to work as a result of a workplace injury or illness.
- Health insurance – For companies with 50 or more full-time employees, including full-time equivalent employees. Under the Affordable Care Act, applicable large employers risk a potential assessment if they do not offer adequate and affordable coverage to their full-time employees and their dependents.
- Family and medical leave – Employees in private firms with 50 or more employees, and all public employees, are eligible for up to 12 weeks of job-protected, unpaid leave during a 12-month period for qualifying family and medical reasons, and to handle qualifying exigencies, as well as up to 26 workweeks of unpaid, job protected leave in a single 12-month period under the Military Caregiver Leave.
This Bill will hurt small businesses and benefit the larger companies so disliked by many freelancers. They are the ones that can pivot their entire business or a portion of it to accommodate the demands imposed by the government. Big businesses like control. When most California professional court interpreters earn between 85-125 thousand dollars per year working a combination of court, private, and direct clients which include LSPs, only the largest companies will be able to compete for the top talent and the best opportunities. The smaller businesses, usually owned by interpreters and translators themselves, do not have the capital to employ professional interpreters and translators, at least, not at the current rates.
Finally, agencies are not middleman, they are our agents. They perform valuable services in exchange for a portion of the fee. This isn’t scalping tickets, or arranging to make a killing out of a deal. They are seeking clients for their business and in turn, we cover those assignments. Agencies allow for interpreters to maximize their earning potential during the day. Most interpreters come into this field without the business skills necessary to compete for direct clients. Even those who do have direct clients, balance their workweek with a combination of court, agencies, and direct clients. Time spent marketing and networking is time away from earning an income. Interpreters benefit from the reputation of the agency. In reality, agencies aren’t employment companies, they are referral services, splitting the fee with the contractor. The Contractor negotiates for their fee and the Agency earns its portion.
We should be asking ourselves a few questions before jumping in the bandwagon of naysayers or yea-sayers. We may not have the answers to these questions, but we should think about it.
- What will it mean for me if I become an employee of one company, even for a particular purpose, and I turn an assignment down because I am already booked with yet another company?
- How would the non-compete clause affect me?
- Would I still need to file Schedule C in my tax returns?
- What if I use my own computer to do translations from home?
- Will my employer have access to my work product or the systems I developed to speed up my translation?
- What if I am translating from home for several companies, even my own, and I get hurt on the “job”, do I sue one employer for a Workers’ Compensation injury or all of them?
- If I am working as an employee of an agency and I have another assignment in the afternoon for another employer, what will be my duty?
When analyzing any kind of legislation or changes to our profession we must consider how this will affect us personally. We cannot think globally if it will affect our bottom line. We cannot think that all LSP are evil. We cannot think that if we eliminate the middleman, we’ll get all the work for ourselves.
WHAT HAPPENS NOW?
Under the current law and this new bill, you don’t get to decide if you are an independent contractor or not. It is incumbent upon the agency to determine if you are an employee or not. It doesn’t matter that you only cover one assignment or 20 per week.
Some may think that this will eliminate the agencies. No, it won’t. They simply need to change their business model and make everyone an employee. This will cost them additional money that can be recovered by paying you less. All the deductions will come in the form of decreased income to the interpreter or increased cost to the end client. It will simply be an inconvenience. If some of them decide that it’s not worth it, then there will be plenty of out-of-state LSPs lurking in the background to take over.
If you only deal with direct clients, you need not to worry about this. However, the majority of private sector, certified court interpreters do a combination of court, direct clients, and some agency work. It behooves each of us to see how we can prevent being categorized as employees. Sadly, we have been through this before.
Do talk to your accountant and/or lawyer as to which is the best legal entity for your needs. If you feel you are misclassified, contact your employer and tell them that you want to be classified as an employee. You don’t need to file a lawsuit; the employer has to follow current law.
WHAT CAN YOU DO?
Our goal is to be included in the exempt professions as stated on the Bill, as amended and shown here, https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5:
The bill would codify exempt specified professions from these provisions and instead provide that the employment relationship test for those professions shall be governed by the test adopted in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 if certain requirements are met. These exempt professions would include licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, a direct sales salesperson, real estate licensees, workers providing hairstyling or barbering services, and those performing work under a contract for professional services. The bill would require the State Board of Barbering and Cosmetology to promulgate regulations for the development of a booth rental permit and a reasonable biennial fee upon workers providing specified hairstyling or barbering services, by no later than July 1, 2021.
If you feel that you are an independent contractor, let your senator know that we should be exempt and be included in the list of exempt professions. In most cases we offer business to business services (B2B). We are independent business owners who offer our expertise to LSP and private clients alike. If it weren’t for AB5, we could remain independent contractors and continue filing and paying for self-employment taxes.
If you want to remain an independent contractor, then you want to be exempt like all the other professionals listed in AB5.