What Businesses Should Know About California’s New Law Regarding Independent Contractors
In 2024, California Governor Gavin Newsom signed Senate Bill (SB) 988 , which is referred to as the “Freelance Worker Protection Act,” Into law. This legislation, which officially took effect on January 1, 2025, could have very important implications for businesses and organizations—”hiring entities”—that rely on the contributions of independent contractors. Here, our California employment lawyer explains the key points businesses should know about SB 988.
California has Strict Regulations Governing Who Is Classified as an Independent Contractor
A company cannot simply decide to classify any person as an independent contractor. California has very strict regulations—perhaps the most comprehensive in the entire country—for those lawfully classified as independent contractors. The “ABC Test,” which states certain criteria an individual must meet to be classified as an independent contractor in California was codified into law by Assembly Bill (AB) 5 . Under this test, a worker is presumed an employee unless they meet all three criteria:
- The worker is free from control and direction of the hiring entity;
- The work performed is outside the usual course of the business; and
- The worker is customarily engaged in an independently established trade.
SB 988 Requires Timely Pay for Independent Contractors
How does SB 988 change the law in California regarding independent contractors? It requires businesses and organizations—hiring entities, but not “employers” in this circumstance—to ensure that any independent contractors they use are paid promptly. This legislation requires hiring entities to pay an independent contractor either:
- By the date agreed upon in the contract; or
- Within 30 days of the completion of the agreed-upon work if no specific payment date is outlined in the contract.
The Law Covers Contracts Worth at Least $250
SB 988 applies to freelance contracts valued at $250 or more meaning these regulatory requirements do not burden hiring entities that use independent contractors for very small-scale and short-term projects. Lawmakers designed this threshold to strike a balance between protecting freelancers or independent contractors and maintaining flexibility for businesses using contractors for minor tasks. However, employers should note that the Internal Revenue Service still requires entities to issue 1099 Forms for contractors who are paid $600 or more annually.
Businesses Will Face Financial Penalties for Overdue Payments
Under SB 988, businesses that fail to pay freelance workers on time may face financial penalties. Late payment can result in fines equivalent to the amount owed—up to a statutory cap of $5,000 per violation. This provision was created to incentivize hiring entities to pay freelance workers promptly. Notably, freelancers now have the right to file complaints with the California Labor Commissioner to recover unpaid earnings. All companies in California that use independent contractors should ensure that their independent contractor agreements include the necessary language in compliance with the law and that they are paying their independent contractors accordingly.
Contact Our California Employment Lawyer for Employers Today
At Sloat Law Group, APC, our California employment attorney is solutions-focused. We are committed to helping our clients prevent problems before they manifest. If you have any questions or concerns about the Freelance Worker Protection Act, please do not hesitate to contact us today. We work with employers in the Coachella Valley, Riverside County, and throughout California.
Source:
leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB988
