Posted on April 3rd, 2025
California has some of the strictest worker classification laws in the country. Under AB5 and the ABC Test, many workers who were once independent contractors must now be classified as employees. The problem? Many employers are still getting it wrong.
What is the ABC Test?
To classify a worker as an independent contractor, the employer must prove ALL THREE of these:
A – Autonomy: The worker is free from the control and direction of the employer.
B – Business Type: The worker performs work outside the usual course of business.
C – Customarily Engaged: The worker is independently established in their trade.
If even one of these fails, the worker must be classified as an employee.
The Risks of Misclassification
Misclassifying workers can lead to:
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Wage & Hour Violations: Unpaid overtime, minimum wage violations, and denied meal/rest breaks.
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PAGA & Class Action Lawsuits: Employees can sue for back pay, penalties, and damages.
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Government Audits & Fines: The EDD and IRS conduct aggressive audits, leading to hefty fines.
Common Misclassification Mistakes
🚫 Just because a worker signs a contractor agreement does not mean they are a contractor.
🚫 Providing their own tools or working remotely does not automatically make them independent.
🚫 Paying workers by the project or on a 1099 does not exempt them from employee protections.
How to Stay Compliant
✔ Review your worker classifications under the ABC Test.
✔ Update your employment contracts to reflect accurate classifications.
✔ Seek legal guidance before hiring independent contractors.
Final Thoughts
If your business relies on independent contractors, it’s time to double-check classifications before the state does it for you. Avoid costly mistakes by staying compliant with California’s strict labor laws.
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