Hiring and compliance
California's employment rules are stricter than most states'. Start with the ABC test: who counts as an employee or a contractor, the main exemptions and the penalties for misclassification.
Statewide guides
Hiring and compliance at a glance
This topic covers how California decides whether a worker is an employee or an independent contractor, and what misclassification costs. For payroll taxes, see California payroll taxes for employers. The first and most costly question is whether someone is an employee or an independent contractor. California presumes a worker is an employee unless the business proves all three parts of the ABC test.
| Item | Rule | Guide link |
|---|---|---|
| ABC test | A worker is an employee unless all three parts are met (Labor Code §2775) | Employee vs contractor |
| Burden of proof | The hiring business must prove the worker is a contractor | Employee vs contractor |
| Willful misclassification | Civil penalties of $5,000 to $15,000 per violation (Labor Code §226.8) | Employee vs contractor |
| Pattern or practice | Civil penalties of $10,000 to $25,000 per violation (Labor Code §226.8) | Employee vs contractor |
| Exemptions | Some professions and relationships use the older Borello test instead (Labor Code §§2776–2784) | Employee vs contractor |
Where to start
- If you need to decide whether a new hire can be paid as a contractor, read Employee or independent contractor? California's ABC test.
- If you need to know whether an exemption such as business-to-business or professional services applies, read the exemptions section of the ABC test guide.
- If you need to understand what you could owe after treating an employee as a contractor, read the penalties section of the ABC test guide.
Frequently asked questions
Can I hire a 1099 contractor in California?
Yes, but only if the worker truly meets all three parts of the ABC test or falls within a statutory exemption. Sending a 1099 or signing a contract doesn't decide the question. If the person does the same work your business sells, they are very likely an employee.
Which part of the ABC test do small businesses fail most often?
Test B. It asks whether the work is outside the usual course of your business. A bakery that hires a plumber to fix a sink passes. A plumbing company that "contracts" plumbers to do its jobs fails.
What happens if I misclassify an employee?
You can owe unpaid minimum wage and overtime, meal and rest break premiums, expense reimbursements and payroll taxes, plus penalties and interest from the EDD and the IRS. Willful misclassification adds civil penalties of $5,000 to $15,000 per violation, or $10,000 to $25,000 if it's a pattern or practice.
Claims often start when a worker files for unemployment, files a wage claim with the Labor Commissioner, or is injured.