Resources
AB5 and California’s ABC test
A worker’s invoice or contract label does not settle employment status. Classification is a legal review of the relationship, while bookkeeping supplies the agreements and payment history needed to support that review.
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General information, not legal or tax advice.
Understand the default under the ABC test
DIR explains that a worker is considered an employee unless the hiring entity satisfies all three conditions of the ABC test. Review the actual relationship with counsel before treating a service provider as an independent contractor in payroll or accounts payable.
Sources: DIR Labor Commissioner's Office (DLSE) FAQ - Independent Contractor
Examine control, business activity and independence
The conditions address freedom from control and direction, work outside the hiring entity’s usual business, and an independently established trade or business of the same nature. Gather the contract, scope and working arrangements so the reviewer can consider each condition rather than relying on a single label.
Sources: EDD - AB 5 / ABC test
Look for an operating business, not just a clause
LWDA explains that the independent business under prong C must actually exist when the work is performed. A contract description alone does not necessarily meet that condition. Keep relevant business records and correspondence available for the classification review.
Sources: LWDA ABC Test
Do not treat a construction exception as automatic
LWDA identifies certain construction subcontracting relationships as exceptions that use the Borello test, together with Labor Code 2750.5. The existence of an exception does not decide whether a particular worker qualifies. Ask counsel to review the applicable conditions rather than assuming every licensed subcontractor is covered.
Sources: LWDA Employment Status FAQ
Track the separate EDD reporting task
EDD requires reporting covered independent contractors within 20 calendar days when federal information reporting is required and payments or a contract reach $600. The described contractor types are individuals, sole proprietors and single-member LLCs. Keep that reporting review separate from the legal status decision.
Sources: EDD - Step 4: Report Employees and Independent Contractors
Sources: worker status and reporting
Continue with 1099 vs. W-2: budgeting and organizing worker payments
Keep classification decisions connected to payroll
Tidwell organizes worker payment records and payroll setup after the employer and advisers determine the appropriate classification.