Prop 22: Contracting Company Toolkit

By Openforce,
 December 10, 2020

Proposition 22:

Contracting Company Toolkit

Your guide to navigating Prop 22 regulations

There is no doubt California’s Assembly Bill 5 (AB5) impacted the way independent contractors (ICs) and the companies that contract them interact. For many ICs they saw the freedoms and flexibility they enjoyed destroyed Fortuitously, after lobbying from app-based companies, trying to protect their business model, Proposition 22 (Prop 22) has been passed. This legislation enables companies who meet certain criteria to once again operate under the IC model.

Where do you begin? We understand that there is a lot to consider and review by companies wanting to understand how they can re-enable this model of business, and because of that, we have created a guide to go over some of the most pressing questions you might have about Prop 22 and what is required to be compliant as a company operating with ICs.

Regulations guide

The importance of Prop 222020-12-10T16:31:27+00:00

Proposition 22 codifies app-based drivers to be independent contractors and not employees or agents. Therefore, the ballot measure approved by 55% of CA voters overrode Assembly Bill 5 (AB5), signed in September 2019, on the question of whether app-based drivers are employees or independent contractors. This law clarifies and changes some standards the logistics industry has had to abide by for decades. In essence, it provides what some have wanted for a long time, some type of definitive “Bright Line Test”.

How to leverage Prop 222020-12-10T16:31:27+00:00

The proposition focuses on app-based drivers being classified as independent contractors. This law was pushed by the Transportation Network Companies (TNC’s) like Uber and Lyft and Delivery Network Companies (DNC’s) like Door Dash and Instacart. The app-based driver classification is determined by (a) providing delivery services on an on-demand basis through a business’s online-enabled application or platform or (b) using a personal vehicle to provide prearranged transportation services for compensation via a business’s online-enabled application or platform. The easiest route for compliance is by enabling your 1099 workforce through app-based dispatch.

Additional qualifications needed to be met for Prop 222020-12-10T16:31:27+00:00

There are quite a few key points laid out in the proposition. The most critical are:

  • Settlement Payments for drivers must be at least 120% of the minimum wage for the applicable geographic location.
  • At least 30 cents per mile from point of pick-up to point of delivery, adjusted for inflation after 2021, per engaged mile.
  • Limiting app-based drivers from working more than 12 hours during a 24-hour period, unless the driver has been logged off for an uninterrupted 6 hours.
  • For drivers who average at least 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 82% the average California Covered (CC) premium for each month with a maximum that does not have to exceed $367 per month.
  • For drivers who average between 15 and 25 hours per week of engaged time during a calendar quarter, require companies to provide healthcare subsidies equal to 41% the average CC premium for each month.
  • Require companies to provide or make available occupational accident insurance to cover at least $1 million in medical expenses and lost income resulting from injuries suffered while a driver was online (defined as when the driver is using the app and can receive service requests) but not engaged in personal activities.
  • Require the occupational accident insurance to provide disability payments of 66 percent of a driver’s average weekly earnings during the previous four weeks before the injuries suffered (while the driver was online but not engaged in personal activities) for upwards of 104 weeks (about 2 years).
  • Require companies to provide or make available accidental death insurance for the benefit of a driver’s spouse, children, or other dependents when the driver dies while using the app.
Additional Prop 22 rules outside of pay and insurance coverages2020-12-10T16:31:27+00:00

Proposition 22 also requires companies to develop anti-discrimination and sexual harassment policies; develop training programs for drivers related to driving, traffic, accident avoidance, and recognizing and reporting sexual assault and misconduct; have zero-tolerance policies for driving under the influence of drugs or alcohol; and require criminal background checks for drivers. The ballot initiative criminalized false impersonation of an app-based driver as a misdemeanor.

How companies can adapt to meet the requirements of Prop 222022-01-24T19:19:52+00:00

As each company’s operations, dispatch methods, settlement calculations and contract specifications differ, we recommend working with Openforce on evaluating the current operation and develop a strategic plan in conjunction with the client’s counsel on the best path toward economically addressing these issues and operation going forward with the peace of mind that you should not be challenged on the classification issue.   

But the short answer is YES! 

Start aligning your business model to Prop 22 today

Now, companies that have traditionally contracted with ICs have a clear path to not only upholding this business model, but in some cases being able to revert back to the IC model, where they may have been previously forced to form employee relationships. Contact us today to schedule your complimentary consultation with one of our industry experts to learn more about how to align your business model and IC workforce practices to Prop 22.

About Openforce

Openforce is the leader in technology-driven services that reduce operating costs and mitigate risk for companies using independent contractors. Our cloud-based applications help companies and contractors alike achieve more sustainable, profitable growth by removing financial, operational, and compliance barriers to getting business done.