Creative Impact and Compliance
Petrol Advertising, a trailblazer in the creative advertising industry based in Los Angeles, is renowned for crafting iconic marketing campaigns targeted at the youth demographic. As they celebrate two decades in the industry, HR Director Marie Morgan shares critical lessons from their experiences with worker classification.
Navigating Complex Worker Classification Laws
The complexities of U.S. labor laws, including the Common Law Test, ABC Test, and specifically AB5 in California, pose significant challenges in classifying workers correctly. In 2020, Petrol faced a steep learning curve when they were fined $90,000 for misclassifying freelancers—a common risk in the industry with the IRS auditing companies retroactively for up to three years if discrepancies are noted.
Strategic Response: Transforming Compliance into Opportunity
Petrol's approach to resolving their classification issues was multifaceted and involved critical changes to their internal processes:
- Legal and Expert Consultation: Engaging a labor attorney to navigate complex and evolving classification scenarios.
- Comprehensive Audits: Collaborating with CPAs to scrutinize past employee classifications and rectify discrepancies.
- Process Redefinition: Aligning worker engagement processes with current laws, particularly California's stringent AB5.
- Technology Integration: Leveraging technology to streamline and enforce new classification processes.
- Empathetic Communication: Addressing changes sensitively to mitigate frustration among long-standing freelancers accustomed to traditional practices.
Cultivating Compliance and Culture
Petrol’s proactive compliance efforts significantly reduced their risk of future fines and enhanced operational effectiveness. "At that time I was also doing accounting because we were small enough, I kept pretty good tabs on how I did things. With our CPA, we looked back at all of our records and walked away with a pretty low amount—$90k—compared to the industry. Most people end up with six-figure fines," Marie Morgan reflected on the experience.
Lessons Learned and Forward Path: Proactive Measures Save More Than Just Money
Petrol has shared these lessons widely, contributing to broader industry knowledge and helping other companies avoid similar pitfalls. Marie emphasizes the importance of steadfast policies and empathetic communication: "The biggest frustration of change will come from freelancers who have worked in a certain way their whole life, but if you keep doing things the same way the fines will add up, and the employer is ultimately at risk. With some empathetic communication, we’ve been able to overcome this together, and now have an overall better way of working."
