From 1099 to W-2: How a New Bill Will Make Payroll Required in California

California’s new bill marks a significant change for contract workers of app-based companies like Uber, Lyft and DoorDash. The newly passed bill requires these companies, and others like them, to treat them as standard, W-2 type employees. This translates to roughly 400,000 individuals within the Golden state.

The bill passed earlier this month 29 to 11. California Governor, Gavin Newsome, a vocal supporter of the bill, is expected to sign it after it goes through the State Assembly. The bill radically changes how the California economy will work – not only for the state itself but for these gig workers, adding a level of security and benefits while many demonstrate calling to unionize.

THE GIG IS UP

While news of the bill is greeted with open arms by most contracts, gig workers in California, companies in the state aren’t as welcoming. Uber and Lyft, currently struggle to reach profitability and have been the most vocal.  Each publicly vowing to fight the measure and its 20-30% cost increase which they believe will implode their business model.

PAYROLL REQUIRED

Not only does the bill force California-based companies to provide basic benefits, but it also requires each with previously classified 1099 employees to file W-2’s making a payroll provider a necessity.  Using a payroll company in this instance is critical as any incorrect payroll tax calculation could yield hefty IRS fines. Using a payroll provider alleviates any business (large or small) of managing the time-consuming task of managing payroll in-house and ensures employees are paid their correct wage – on time.

WHAT NEXT?

Arguments both for and against this bill will undoubtedly continue, but the question remains, “Can these companies stay afloat after elevating contract workers to W-2 filing employees?”.  We’ll know more once this bill becomes California law on Jan. 1, 2020.