On September 11, 2019, the state of California passed a bill known as AB 5 (Assembly Bill 5). AB 5 has been at the center of an ongoing debate between app-based “gig economy” companies and the State of California, because AB 5 re-classifies many independent contractors as employees. The purpose of this bill, according to California governor Gavin Newsom, is to “help reduce worker misclassification – workers being wrongly classified as independent contractors rather than employees, which erodes basic worker protections like minimum wage, paid sick days and health insurance benefits.” Before we dive into the implications on your club, let’s take a closer look at AB 5 and create more clarity on the bill itself.

The Difference Between an Independent Contractor and an Employee

According to the Internal Revenue Service (IRS), worker classification is important because “it determines if an employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an "employee.” Amid these discussions and debates, it is important to note that businesses do not normally withhold or pay taxes relative to independent contractors because such earnings are subject to self-employment tax. According to the IRS, an individual is an independent contractor if the payer has the right to control or direct the result of the work rather than how the work is accomplished.

AB 5 uses what legislators call the “ABC test” to distinguish an independent contractor from an employee. That is, (A) they perform tasks under a company’s control; (B) their work is integral to the company’s business; and (C) they do not have independent enterprises in that trade. AB 5 explicitly exempts several categories of employers:

• Doctors
• Some licensed professionals (lawyers, architects, engineers)
• Financial services
• Real estate agents
• Direct sales
• Commercial fishermen (until 2023)
• Builders and contractors
• Professional services (marketing, HR administrators, travel agents, graphic designers, grant writers, fine artists)
• Freelance writers, photographers (35 or less submissions to an outlet in a year)
• Licensed hair stylists, barbers (must set own rates and schedules)
• Tutors (must teach own curriculum, not affiliated with public school)
• AAA-affiliated tow truck divers

Impact on the Club Industry

AB 5 does not explicitly exempt club, fitness, wellness or tennis coaching professionals from its ambit. While most fitness and tennis professionals are certified, they are not considered “licensed.” As a result, club owners should likely assume that AB 5 impacts their organization until clearly told otherwise.

When thinking about the implications of AB 5, club owners should ask whether its instructors: (A) perform tasks under a company’s control; (B) if their work is integral to the company’s business; and (C) if they do not have independent enterprises in that trade. If the answer to all three of these is “yes,” your tennis professionals who are currently independent contractors may need to be reclassified as employees. While reclassification may prove expensive, statutory fines are significant.

Addressing the Potential Impact with Club Automation

Is your club management solution designed to make this potential transition easier?

Here are the main ways Club Automation will help your club successfully manage these changes to your workforce:

• Staff scheduling and payroll management with Club Automation allows you to view at-a-glance schedules while keeping track of lunch breaks, vacations, sick days, pay periods and anything else that is important for your team.
• Class management with Club Automation allows you to create and organize all of your classes in one central location while managing advanced settings such as multi-day discounts and customized pricing with ease.
• Online registrations with Club Automation will allow your members to sign up for classes or make reservations at home, or on the go.
• Billing and payments with Club Automation allows you to give your members the flexibility to make payments and update payment methods online, allowing your billing office to be open even when the club is closed.

While certain industries are lobbying for exemptions and amendments, the new requirements of AB 5 in California must be addressed by companies by January 1, 2020. As for other states, legal experts expect AB 5 to influence similar decisions as the focus on worker rights is increasing among state governments. Importantly, Massachusetts and New Jersey have already been focused on making it harder for companies to classify workers as independent contractors.

Whether you’re in California or another state considering this change, make sure your club is ready to manage a significant operational and personnel change. Schedule a live demo to see how we are reinventing club management.

Read the entire bill here.

Nothing in this article is intended to provide legal advice. Please seek the counsel of a legal professional with regard to your organization’s specific circumstances.