Independent Contractor vs. Employee in California: The ABC Test

Under Labor Code §2775 — which codified the Dynamex decision — a worker is an employee unless the hiring entity can prove all three of these:

• A. The worker is free from the control and direction of the hirer in performing the work, both under contract and in fact.
• B. The work is performed outside the usual course of the hiring entity's business.
• C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Fail any one prong, and the worker is an employee.

Certain occupations and relationships are carved out of the ABC test and judged instead under the older, multi-factor Borello standard — for example, some licensed professionals, bona fide business-to-business contracting relationships, and referral arrangements. These exemptions are narrow and condition-heavy; qualifying for one is not automatic, and the conditions must actually be met.

Treating an employee as a contractor can expose you to:

• Unpaid overtime, minimum wage, and meal/rest-break premiums;
• Unpaid payroll taxes, unemployment, and workers' compensation;
• Unreimbursed business expenses (Labor Code §2802);
• Willful-misclassification penalties of $5,000–$25,000 per violation (Labor Code §226.8), on top of the back wages.

• Audit each contractor role against the ABC test — especially prong B (is the work part of what you sell?).
• Paper genuine contractor relationships properly, but remember a contract alone does not control the analysis.
• When the answer is unclear, the safer default is to classify as an employee.