In this week’s podcast we discuss the new 1099 vs. W2 employee rules and how they will affect businesses in California. Many businesses are struggling to figure out how they can proceed, but considering solar is a good hedge against rising costs! California Assembly Bill 5 (AB5)
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California’s New AB5 Rule [Transcript]
Hello. Hello Jamie. Hello, Adam. All right, it’s time for the best. 20 minutes on solar talk. We’re going to experience this week. Hopefully 10 minutes. I’ll make it short. All right. How’s everything going with you?
I was going great. It’s been raining here this week. It’s been excellent for California cause that means not much fire danger right now. Woo. That means no potential. PG&E shutdowns. Yeah. Fingers crossed. Yeah. Yeah. It’d be hard for them anyway. So that is nice, you know, to get a break from that kind of stress and everything and people can take breath and, and hopefully, you know, we’ll get some more rain for a while in California, Canada, get out of drought mode and, and back to back to normal.
Yup. Back to normal. Back to normal. No rain for 185 days.
Oh my gosh. Yeah, yeah, that’s, that was crazy. So, you know, yeah, we need water for sure. So, and it’s a, it’s nice to give us a short break in the frantic newness, which is good.
Yeah, I bet. So what’s on the agenda for today?
So, you know, a couple of weeks ago we talked about a new things in solar but because of the name of my company is Solar Harmonics, you know, solar kind of works with everything. And so we’re, we’re looking ahead of what’s going on. And in California there’s a new law that is gonna change everything. It goes into effect on January 1st and it’s called AB5. Have you heard about this one?
I have 10 99 becoming W2. It’s like the Uber law or something.
The Uber law. Exactly. So right now there’s a lot of people that work and don’t get payroll taxes taken out of their check. They get paid as an independent contractor. And then the state does not get really, you know, a lot of times those people don’t really pay their taxes on time and it’s really difficult for the state to track. So basically the state is putting in new rules that now everyone that was a contractor is now has to be brought in as employee. And so that is that’s changing a lot of, a lot of businesses in California.
I know there’s a long checklist of questions and if you answer yes to one of those questions, you’re, you’re a W2 employee.
Pretty much. Yeah. So it’s you know, it’s gonna really affect the tech business. It’s going to really, I mean, we’re already seeing, just like you said with Uber and Lyft but there’s, there’s so many unintended consequences of this. It’s, it’s crazy. So contact of mine yesterday, let me know that he’s always in the payroll business and I met with a trucking company and basically the guy says, okay, so if I keep everything exactly the same it’s is now, except bring my truckers on as employees. Not only does my payroll tax go up, but my worker’s comp, which is based on the payroll, that goes up to a, so I’m looking at a bill of about $250,000 if I stay in California. And he said, yeah, that’s pretty much it. Wow. $250,000. That’s a lot. So for your industry, for solar, let’s take it back there.
What’s the, what do you think it’s, what’s the consequence of this? We’re pretty okay. A lot of arm our employees, essentially our 10 99 contractors. But that’s because they’re a separate company and so we pay them and they’re a S like a separate corporation or limited line. So I don’t wanna get too much and make this a payroll discussion. But what I wanted to more discuss is what if you’re a company or you work for a company that says, you know it’s just easier for us to leave California than it is to stay and pay all these new taxes and pay employees and all that kind of stuff. You know, one thing you may want to say suggest or consider is looking at solar power. So with my contact who is he’s meeting with this company again today I believe.
And he’s going to ask them, you know, one thing you might want to consider to mitigate these new expenses is, and you know, it’s not $250,000 of savings, but it probably can help a little bit. And that is of course going solar and looking at that. And so that could be a good way where, you know, it’s not only does he get the benefits of the energy bill savings, but he would also get the the tax credit, which is going to 26%, but also depreciation expense. So it still is going to break even in two to three years. But you know, if he’s planning on being in business and you know, paying employees and kind of doing things the way they should have been kind of from the beginning you know, again, not a political discussion but you know, they kind of, our employees, if they’re working for you then it’s a you know, it is something to consider for sure.
You are such a socialist, you know, it’s crazy. Okay. One quick aside is if you are a salaried manager, how does that get avoided? I mean our manager, what? Just because they are in charge of people, that means that they’re not eligible for overtime. That always confused me dramatically. Cause those guys, you know, if you’re a manager at a retail store, generally you’re working 60 hours minimum. So anyway, that’s wow. Yeah. For a restaurant or those kinds of things. So anyway, my main point is you know, these new rules are going into place rather than just saying, Oh, forget it, I’m just going to close my company, which we’re also hearing too. We’re just gonna move out of California. Well, if you still want to do business in California which a lot of companies still do then you have, you know, that does your payroll is still in California. So that doesn’t change anything. So it’s a, it’s going to be a mess for awhile. There’s a bunch of different exemptions and so if your company has questions, I’m happy to connect you with my contact. Who can, you know, go over the, you know, is your company eligible or not eligible for this? And then, you know, kind of what to do now that it’s here because it starts in a, you know, 25 days.
We’re after them now. Yeah.
Yeah. So it’s something that you want to be in front of and not because I think the penalties are pretty severe. And so I think the state is tired of being in a deficit and they’re going to collect a state is super aggressive on payroll and payroll taxes. So,
Oh yeah, I know that. I [inaudible] yes. So taking that, so basically you’re, you’re, what you’re suggesting is, so you’re going to get hit with, if you’re, if you’re running a company, you’re going to be hit with these increases if you’re changing over all your 10, 90 nines. So you have to look for other places to kind of make up that money. And solar solar’s a no brainer because you are in California and you have a roof on your above you. And you know, maybe, yeah, if you have a parking structure, you have a roof there. So all of those should be used to offset your electric costs. Then once it’s paid off, you’re not paying anybody anymore. So for the next 20 plus years, you’re banking that money. So instead of it going into the air as an operating cost or the PTA or so it’s staying within the company, so you can use those funds to pay more taxes or to improve your business or basically, so it’s not just going away. Yeah. It’s a no brainer.
Yeah. And so that’s I think it’s a, it’s a great opportunity for companies to really look at, all right, well if, if we can’t do anything about it, well maybe, you know, and if it’s going to be uniform for every trucking company, for example, and everyone’s going to have to bring on their truckers as employees, well then, you know, costs are just going to go up. And so that’s just, but it’s, it’s gonna, you know, and that’s kind of why these things I don’t think make any sense as, because all right, well, we’re going to have to pass these, you know, I’m not going to just eat $250,000 of expense. I got to raise my prices and I’m going to point back to, well, you don’t like it. Well, point to the governor or point to the legislature and yeah, prices are going up. And so the company, you know, the customer would then, all right, well I’m going to shop for another trucking company. Oh, and guess what happens? They find another one. And so eventually everyone’s going to be at the same cost and now everyone’s at the same place. So except now with higher costs, but
Well, it’s also, it’s going to push those companies specifically trucking to go towards automation, which is, that’s a, that’s a big deal. And be, that was the whole point of all this weird, huh? So yeah, automation for driving for trucking. If it’s, if this is aimed at that industry but it’s such a, the unintended consequences. This is going to be interesting cause it’s what you said I think what 30% cost increase for employees or for 10 90 nines. And then you want to hear another crazy statistic that I just heard maybe the other week as well. 70% of men in the U S are involved in some kind of delivery, whether it is trucking or Uber or Lyft or forklift driver or crane operator, you know, whatever, you know that 70% are targeted for automation. So yeah, everything next week we’ll have a much happier topic I promise. But anyway, so there is some light at the end of the tunnel with you if your company is getting hit with this think about going solar.
It’s the whole thing. Yeah. Great. [inaudible] Okay, we’re going to wrap it up there unless you have any other song. No, no. I know I got millions of them but that’s not what I thought was pretty, pretty specific and pretty interesting. Yup. Okay. Well everyone, thank you for listening. If you have any questions for us, for future episodes, please go to our Facebook page like us on Facebook. Follow us there a write a five star review for us on Apple podcasts. Send us a message through Facebook and we’ll be sure to answer it on an upcoming episode. Thanks very much. Have a great week.