275 - Photographer Audited by the EDD
On today's episode we're going to talk about the scary topic of worker misclassification.
Back in January 2020 an official law went into effect in California that codified a California Supreme Court case that implemented a new test to determine if a worker is an employee or if they can be an independent contractor. If you're not in California, don't tune out because over half of the states in America use a very similar test and the Democrats in Congress are wanting to pass similar legislation at a federal level to apply these tests to everyone.
A quick note on lingo: when I use the term "worker," I mean anyone you're hiring to help you in your business. Worker is neutral in regard to the issue of are they an employee or a contractor. If I'm arguing to the state, I like to use the term "contractor" because the state's going to say they think this worker is an employee and I'm going to say I hired them as a contractor.
To read more in detail about worker classification, I would encourage you to read my blog post "Dealing with California's New Contractor Laws" at https://www.bradendrake.com/ab5
The AB5 Law passed the ABC test to determine employee vs. contractor:
A. The worker must be “free from the control and direction of the hirer.”
B. The worker must “perform work that is outside the usual course of the hiring entity’s business”; and
C. The worker must “customarily be engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.”
For example, if you're a photographer hiring another photographer, according to Part B you cannot hire another photographer to work with you as an independent contractor (more on this later). Where it gets a bit more dicey is when you hire a marketer. Marketing is part of the usual course of my business for example, but I'm not a marketer so I would argue hiring a marketer is someone doing work outside the usual course of my business so it's a bit of a gray area. If they're providing part of the core service that you provide, then it's a no for part B.
In most states that use this test. a worker is assumed to be an employee unless the hiring entity (the person hiring the worker) can prove they pass the ABC test. There are tons of exceptions, including the event professional amendment which said you have an exception the ABC test if you are hiring someone for a single engagement event i.e. a wedding, but you have to meet eight requirements which are outlined in my AB5 blog post. https://www.bradendrake.com/ab5 There are also a lot of professional service exceptions including photo and video professionals.
To learn more, check out the episodes linked below (I even got into a Twitter dispute with the author of the law in California)
Episode 72 - AB5 for Photographers
Episode 177: Do Your Contractors Need to Be Employees?
Episode 218: In Which States Can You Work With Contractors?
I reference photographers so much in this episode because I am working with one on their case against the California Employment Development Board that I will be using as a case study in this episode.
Business to business exemptions exempt a worker from an ABC test if they also are a business but this one has 11 requirements that are very strict. This means that just because you're a photographer hiring another photographer, you're not necessarily out of the woods.
It's important to note that if you are hiring someone who meets all of the exceptions within one of the three given categories it does not mean they are automatically a contractor. It just means you go to our old test which is called the Borello test which is a less strict test, mainly hinging on control and direction.
Control and direction is a requirement in almost every one of these exceptions and it requires that you do not have control and direction over the worker as the hiring entity.
Now, to dive into our case study. I'm working with a photographer who is being audited by the EDD. The EDD says they got pulled for a random audit. From a business owner perspective I understand this can feel terrifying and be a huge pain in the ass. The amount they are going for was no more than about a thousand dollars total. I'm sharing this on the podcast so you know what arguments the state is bringing to claim that the people this person is hiring should be employments. While this case in ongoing and does not have a result yet, I'm hoping you can use this information to better protect yourself against this moving forward.
The facts are a wedding photographer hired a couple different second shooters. They worked only one or a few weddings, had their own contracts, and set their own rates. They showed up to the wedding, took the photos, passed the photos along, then moved on with their own wedding businesses.
Reading the report from the state, here are a few general excerpts.
"For all services performed beginning January 1, 2020 unless there is a court of law ruling under certain code section of the labor code or an exception under other codes of the labor code, the employment status of workers in California will be determined using the ABC test. Under the test it must be established that the worker is free from the control and direction of the hiring entity. If the worker is providing services outside the course of the usual hiring entity's business, and if the worker has a separately established business under the same nature of work. Since the worker's had their own self-employment business the business to business contracting ABC test exception under section 2776 must be considered. When the exception criteria was examined, it was found that all criteria were not met including the workers were not free from the control and direction of the hiring. During the photo shoot, the hiring entity gave directions to the workers whom to follow, what segment to cover, which lens to use, and which angle to use for a certain scenario for the hiring entity. The workers were given instructions about the way the service was to be performed. The hiring entity explained the timeline of the event to the workers and they worked together to coordinate the photographer services."
That was point one as to why they did not meet the business to business exception. The state is saying that they exercised too much control and direction over the second shooter. We provided counter arguments that that's not really how it works, that my client did not dictate what lens to use but rather if they're taking a wide shot the other person should take a close shot because it would defeat the purpose to take the same shot at the same time. The second shooter uses their own discretion to choose their lens.
Right now in the process, after the auditor made these determinations, we recently had a phone call with this auditor's supervisor to state why we disagreed with these findings and we're waiting to hear back. We are expecting we will need to appeal this but we will see when we hear back.
Point two made by the EDD was that the workers provided services to the clients of the hiring entity. One of the requirements under the B2B exception is that the worker provides to the hiring entity, not to the clients. The EDD is saying that the second shooter is providing services to the client because they're taking pictures of the client, but we're like okay but the photographer was hired by the client.
This is the issue with new laws, we don't have other examples or arguments to go off of by what the authors of the law meant by that. I made the argument when I was complaining to the author of the law about this point in particular because I said if you are a wedding planner and you have a day-of assistant, you're not really dealing with the couple so much, especially if you're there for set-up and take down. You might if you are the second shooter or if you're a makeup assistant your are providing the service directly to the client so I think it's bull shit.
They also noted that since workers performed on a per-project event basis, the single engagement event ABC exception must also be considered. It was found that all criteria were not met including: workers are not free from control and direction from the hiring entity, and the EDD went on to copy paste what they had said above since this exception has the same requirement. They also said there was no written contract for services with the person being hired. They had this one wrong because the photographer did have a contract with the people they hired.
Now we're on the third exception. The EDD said since workers performed photography services, the professional services ABC exception under section 2778 B21I of the LC must be considered. When the exception criteria were examined, it was found that all criteria were not met including: the workers were not able to set their own hours because the shooting schedule is set by the hiring entity and their client, and then during the shoot the hiring entity gave control and direction.
Looking at the professional services exception, there is a requirement that says, "outside of project completion dates and reasonable business hours, the individual has the ability to set the individual's own hours." We counter argued by saying that the law says "outside of project completion dates" and the project completion date during an event is the event date so obviously they have to be there on the project date. They seemed pretty convinced on our argument for that but we will see.
If you were hiring a graphic designer for example, my graphic designer can work any time she wants to get the project completed by the project completion date we agreed on.
Under the professional services exception, the argument is a little bit different for control and direction stating "the individual customarily and regularly exercises discretion and independent judgement in their performance of the services." This is more vague because what does "regularly" mean.
I'm anticipating that if we are able to get any exceptions through that hopefully they'll concede on this control and direction element but if not, I think it's more likely that we'll get the professional services exemption which is good for this particular client.
Typically I don't like to give examples of things that are on going but I feel that this one is general enough to serve as an example to any photographer. I will report back when we hear back from the EDD. Their outcome will impact how we talk about things like second shooters as a whole in the industry when it comes to being employees or contractors.
To end with some practical tips:
- Don't tell your second shooters or your contractors how much you're paying them. You ask them their rate and then you're able to negotiate if you want. The negotiation is not you saying "I pay $X an hour and everyone takes $X an hour." This would be harder to argue in an audit because it's a take it or leave it situation.
- There must be a written contract for every event. It has to specify total payment for services. The law is very literal. The law literally says total payment for services and if I'm reading that literally it needs to say the total payment and not the hourly payment.
- Each individual has their own business location meaning you can't share an office.
- Each individual provides their own tools, vehicle and equipment. This means at a minimum they must provide their own camera equipment if they're a photographer.
- If the work is performed in a jurisdiction that requires the individual to have a business license or business tax registration, then each individual has the required business license or business tax registration. I've always recommended since this law passed that you get a copy of their business license to cover your own ass.
- Each individual is customarily engaged in the same or similar work. If you're hiring a photographer, they should be a photographer.
- Each individual can contract with other businesses to provide the same or similar services. You cannot require them to only work with you exclusively.
I think the best thing we can do about control and direction is to make it clear with our second shooters that we need to be aware of this is that we will have this be a collaborative effort, if I jib, you jab. Make your second shooters very aware of this law (have them listen to these episodes) so that you all know what to say if you are audited. I don't mean this in a coaching you what to say way, you are not coaching them to lie or misconstrue anything, what I mean is you want to make sure you both know what the requirements are so when the state asks, you can appropriately respond with how the day played out truthfully.
I understand this episode may have been scary. I encourage you to go read up on it more. If you don't know what test your state uses for workers, Google what independent contractor test is used in your state and keep your eyes peeled because I am releasing another update to my book in about a month and I'm adding an entire chapter about it. I also help with this in my legal subscription so if you need help with this, visit https://notavglaw.com/
I really think this is a topic we really need people to understand and be aware of because I see the potential that a lot of people are going to start getting audited and we all need to get our shit together, even if it's scary.
