Employee or Independent Contractor

It’s important for business owners to correctly classify workers as either employees or independent contractors. In California, employee wages are subject to state payroll taxes, while independent contractors are not. In general, workers are considered employees unless they meet specific criteria below. There are various status issues to consider when making an employment determination:

• ABC Test: Use the ABC test to determine if an individual is an employee or independent contractor. If an individual meets one of the ABC test exceptions below, the ABC test does not apply. The individual is considered an employee unless all three conditions are met:
  1. The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. The individual performs work that is outside the usual course of the hiring entity’s business.
  3. The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If all three conditions are not met, the individual is an employee unless there is a statutory exclusion or exception:

• ABC Test Exceptions: In some cases, a different test called the Borello multifactor test must be used instead of the ABC test.

For more information on employment status, visit the Employment Status Portal.

Other Classes of Employees and Independent Contractors

• Statutory Employee: This is a worker who is considered an employee based on specific laws. For more information, see the Information Sheet: Statutory Employee (DE 231SE) (PDF).
• Exempt Employment: Some employees and specific types of employment are not subject to one or more of the following payroll taxes: Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholding. For more information, see the Information Sheet: Exempt Employment (DE 231EE) (PDF).
• App-Based Drivers: Drivers who work for app-based companies are usually independent contractors when certain conditions are met.

Resources

Learn more about how to determine if a worker is an employee or an independent contractor by viewing the recorded webinar AB 5 Motor Carrier Worker Classification (YouTube).

More information is also available through the EDD’s free Payroll Tax Webinars.

Help Us Fight Fraud

The EDD conducts inspections and audits to make sure workers are correctly classified. This helps protect workers and prevents unfair competition. If you think someone is breaking the law, you can report it online or by mail.

Contact Us

If you have questions, Contact Payroll Taxes. You can also call the Taxpayer Assistance Center at 1-888-745-3886 or go to your local Employment Tax Office.