Hiring
Contractor or Employee in California
How California's ABC test works for hiring. All three parts are required. A 1099 does not decide the question. From the state's Department of Industrial Relations FAQ.
Last reviewed October 20, 2026 · 4 min read
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What you'll need
A short description of the work
Whether that work is what your business usually does
The DIR FAQ open, plus a lawyer or employment advisor if the answer is unclear
1. The assumption
The California Department of Industrial Relations explains the test in its independent contractor FAQ. We read it on October 20, 2026.
The law assumes the worker is an employee. The hiring business must prove all three of the following:
A. The worker is free from your control and direction, both under the contract and in how the work is actually done.
B. The work is outside the usual course of your business.
C. The worker is customarily engaged in an independently established trade of the same nature as the work they are doing.
Miss one part, and the ABC test is not met.
The test comes from the California Supreme Court's Dynamex decision in 2018 and from Assembly Bill 5, which took effect in September 2019. Later changes, including AB 2257, are in Labor Code sections 2775 through 2787. The DIR FAQ is the page that tracks how the state explains them.
2. The label on the paperwork
Calling the person a contractor does not make them one. Paying with a 1099 does not make them one. A signed agreement does not make them one if the work itself fails the test.
A plumber who runs their own shop, brings their own tools, and also works for other customers is a different situation from a cashier who works your shifts, in your store, under your rules. Part B is the one many businesses miss: if the person does the same work you sell, they are often inside the usual course of the business.
3. The test is not the only rule
Some occupations are outside the ABC test and use the older Borello test, or a rule in the Business and Professions Code. The exemption list is long and specific. Read the DIR FAQ. Do not treat a blog summary, including this one, as permission.
The DIR also explains where else the ABC test shows up. For workers' compensation, it applies to injuries on or after July 1, 2020. For unemployment insurance, the Unemployment Insurance Code version applies from January 1, 2020. Those programs can still look at the facts of the job.
Willful misclassification has its own penalty. The DIR FAQ points to Labor Code section 226.8, which sets civil penalties of $5,000 to $25,000 per violation when an employer willfully treats an employee as a contractor.
If the person is an employee, the hiring steps are in hiring your first employee in California: EDD registration, labor posters, Form I-9, and workers' compensation.
Common mistakes
A handshake and a 1099, with no look at parts B and C.
Assuming a specialty occupation is exempt without reading the statute.
Waiting for a claim before you decide. The status is set by the work, not by a later form.
Questions people ask
What are the three parts of the ABC test?
The hiring business must show all three. A, the worker is free from control, in the contract and in fact. B, the work is outside the usual course of the hiring business. C, the worker is customarily engaged in an independent trade of the same nature.
Does a 1099 make someone a contractor?
No. The DIR says the test looks at the work, not the label on the form.
Does every job use the ABC test?
No. Some occupations use the Borello test or a rule in the Business and Professions Code. The exemptions are detailed. Read the DIR FAQ, and ask a lawyer before you rely on an exemption. This guide is not a ruling on your worker.
We can talk through the next hiring step on a free call.
Book a Business Boost CallWords to know
ABC test: The three-part test in California law for many workers.
Hiring entity: The business that pays for the work. That is you.
Employee: Someone on payroll, with the tax and insurance duties that come with it.
Independent contractor: Someone in their own business, when the law's test is met.
Sources
- Independent contractor versus employee FAQ - California Department of Industrial Relations · dir.ca.gov
- Labor Code section 226.8 - willful misclassification · leginfo.legislature.ca.gov
This is general information for Sacramento and Northern California businesses. We are not attorneys or tax advisors, and this is not legal or tax advice. Check the official sources, and a local pro, before you act.