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AB 5 threatens the existence of Owner-Operators in California

AB 5 threatens the existence of Owner-Operators in California

One morning in September 1998; a group of truckers were together at the entrance of the ninth circuit federal courtroom in the federal building in Los Angeles. It was the day where many truck drivers were fighting against the IRS for the appeal that they should be recognized as employees. Finally, the IRS heard to the truckers’ demands by recognizing them as employees.

However, the IRS only recognized that the truckers were employees, but did not apply the law. For their convenience, truckers didn’t continue to demand that recognition right since, in doing so, their taxes as employees would be higher. Since then, no one has mentioned the issue again and it wasn’t until recently, on September 18, 2019 that the California Governor, Gavin Newsom, signed AB5, which recognizes Uber and Lift drivers as employees of these companies.

How will California AB5 law affect independent contractors in California? In the same way as the drivers of Lift and Uber. These drivers use their car to transport customers assigned by certain companies and without them, they would be able to negotiate their own rate. Similarly, the truck drivers use their trucks to transport a load assigned by his employer, and similarly, the trucker is not able to negotiate the rate of their cargo.

In summary, AB5 is believed to force employers (motor carriers) to recognize owner-operators as their employees. What is not clear is the impact this would have on every employee`s taxes and under what classification should they be under federal law.

The questions you need to ask yourself is whether you really want to be classified as an employee or do you want to continue as an owner-operator in your transportation business. If you want to be an employee, your option would be to not continue as an owner-operator and to get rid of your truck.

The other option of freedom and independence would require you to convert your transportation company into a corporation or limited liability company (LLC). So, you could continue to maintain your independence, which for many truck drivers is what’s most important.

AB5 will be implemented on January 1, 2020 and both transport companies and owner-operators are trying to find strategies to continue their business. This law however, threatens to terminate the work model of the owner-operator.


Taxes at the Wheel


Edic.: 148
Autor: Gustavo Nuñez
Date: 11/2019