AB 5 has been getting a lot of attention. If it passes, it would require businesses to use something called an “ABC” test to figure out if their workers are employees or independent contractors. If the worker is A) free from the company’s control, B) doing work that isn’t central to the business and C) has business in the industry separate from the company, they’re an independent contractor. If not, they’re an employee. That could have enormous consequences for companies like Uber, Lyft and industries like cosmetology or even exotic dancing. But AB 5’s reach isn’t limited to gig economy jobs. It could reshape institutions like Hollywood.
“The accountants seem concerned that because workers will now be treated as employees under labor law, that they would also begin to treat workers as employees under tax law,” says Ashley Cullins, a staff writer for The Hollywood Reporter. “Everyone fears that this is going to hit people in their paychecks.”
Right now, big players in the entertainment industry take advantage of a business-to-business transaction called a loan out. For example, if an actor is going to work with several studios, they might form their own company. Then when they take a job, the studio will contract that company for the project, who will then hire the actor for the work. That comes with a number of tax benefits for deductions. AB 5 could change how those transactions work, and take the deductions away.
“It's most likely to have you know the most troubling financial impact for people who make more than say 250000 dollars a year,” Cullins says. But the bill could also lift up workers that aren’t quite at that level yet.“It might actually help...below the line workers who don't work quite enough to qualify for union or guild benefits because this would give them a guaranteed minimum wage protection, health care those sort of things.”