Financial advisors are among the groups that could be most affected by proposed legislation in California and New Jersey that would heighten regulation of companies that hire independent contractors, according to industry observers.
The legislation is causing confusion among small businesses in California, and in New Jersey some independent contractors recently testified that it will derail their livelihoods. Reps at independent broker-dealers could be among those hit hardest, as could the growing number of clients in the gig economy.
California’s Assembly bill AB-5, which takes effect on January 1, requires business owners to either prove its workers are independent contractors or hire them as employees. New Jersey Senate bill S-4204, which expands the definition of employee versus independent contractor, was approved yesterday by the Senate Labor Committee and has advanced to the full state Senate. The Assembly has introduced a similar bill.
The legislation in both states was intended to make sure workers are fairly compensated—particularly as the gig economy expands. Challengers of the bills don’t dispute the importance of treating workers fairly, but they are worried about the ambiguity of the legislation and the economic pains it may cause.
“This bill would hit small businesses especially hard because they would be unable to use contractors for their non-essential tasks that large companies can do in-house, like payroll or janitorial services,” Mike Wallace, vice president of government affairs for the New Jersey Business and Industry Association, said in an article published on the NJBIA website about the NJ. legislation.
In an op-ed published in the Philadelphia Inquirer, N.J.-based freelance writer Jennifer Miller said that even if she was lucky enough to land a staff writer job, it would pay about half of what she is currently earning as a freelancer and that she would lose her flexibility. She also noted that her peers in California are already losing work in and out of state because of fears of similar legislation.
The California and New Jersey bills carve out exemptions for some careers, including real estate agents and accountants, but it’s not clear how it could impact people in other industries. According to the U.S. Department of Labor Statistics, there were 10.6 million independent contractors in May 2017, comprising 6.9% of total employment.
In addition to California and New Jersey, 11 other states have adopted the “ABC” test—the strictest test for defining independent contractor status.
The movement “feels like this is going to be gaining momentum, not losing it,” said Derek Holman, a managing director and co-founder of California-headquartered EP Wealth Advisors.
Holman said 20% to 25% of EP Wealth Advisors’ clients will be impacted by California’s AB-5. The bulk of these clients are business owners. He also has a number of other clients who retired from the defense industry and are now independently consulting for aerospace and defense companies.