California Independent Contractor
& Employee (AB5) Compliance Tool
Check your audit risk in 2 minutes under California AB5 & SB 988. Free & no sign-up required.
What Does This Worker Actually Cost You in California?
A 1099 hire looks cheaper on paper. This calculator shows the real gap between 1099 and W-2 costs under 2026 California rates — and what that gap can turn into if the audit above flagged high risk.
Want the federal check too?
California's ABC test is stricter than the IRS 20-point checklist. Run both before you finalize classification.
Already did the work and still haven't been paid?
Generate a formal SB 988 demand letter — cites the 30-day rule & double damages — and send it today.
ABC Test vs. Borello Test: Which Applies to Your California Contractors?
In California, worker classification is no longer a guessing game. While the IRS uses a 20-point checklist, California strictly enforces the ABC Test established by Assembly Bill 5 (AB5) for most industries.
To classify a worker legally as an independent contractor, a hiring entity must prove all three of the following conditions:
- A (Behavioral Control): The worker is free from the control and direction of the hiring organization in connection with the performance of the work.
- B (Core Business): The worker performs work that is outside the usual course of the hiring entity's business. (This is where most businesses fail compliance.)
- C (Independent Trade): The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
What about the Borello Test?
The older Borello standard relies on a multi-factor balancing test (similar to the IRS 20 factors). Today, it only applies to specific statutory exemptions in California (such as licensed real estate agents, certain professional services, or direct salespersons). If your business doesn't fall under these rare exemptions, the strict ABC test rules your contract.
California Independent Contractor Payment Laws & SB 988
Ensuring your workers are classified correctly is only half the battle; paying them according to California law is the other. Under the Freelance Worker Protection Act (SB 988), California has introduced steep penalties for delayed payments to independent contractors.
If you hire freelance workers in California, you must adhere to these strict guardrails:
- Mandatory Written Contracts: Any contract valued at $250 or more must be in writing, specifying the rate, method, and date of payment.
- 30-Day Payment Deadline: Payments must be made on or before the date specified in the contract, or no later than 30 days after the completion of services if no date is specified.
- Late Payment Penalties: Hiring entities that fail to pay on time can face double damages (2x late payment penalty) plus attorney fees under SB 988.
The audit tool above automatically factors these SB 988 checklist criteria into your result. If it flagged missing contract terms, generate a compliant contract now.
What is the new independent contractor law in California for 2026?
Does California still use the IRS 20-point checklist?+
The IRS 20-factor test is still used for federal tax auditing. However, for state labor laws, payroll taxes (EDD), and worker's compensation, California mandates the much stricter ABC test. Meeting IRS standards does not mean you are compliant with California AB5. If you want to check the federal side too, run our free IRS 20-point classification check.
Can a contract waive California AB5 rules?+
No. You cannot contract your way out of California labor laws. Even if a contractor signs an agreement stating they want to be a 1099 independent worker, the State of California will look past the contract and audit the actual economic reality of the working relationship.
What happens if I misclassify a worker in California?+
The penalties are severe. Civil penalties range from $5,000 to $25,000 per violation for willful misclassification, plus retroactive payments for unpaid overtime, meal breaks, and severe back taxes to the Employment Development Department (EDD). See what that looks like in dollars for your specific case with the 1099 vs. W-2 true cost calculator above. If your audit result above flagged high risk, run the IRS 20-point checklist next, then generate a compliant written contract before continuing the engagement.
Next steps once you know your risk level
Contract Generator
Build an SB 988 compliant freelance agreement in 60 seconds.
Demand Letter Generator
Already unpaid? Send a formal SB 988 demand letter today.
Penalty Calculator
Calculate double-damages exposure for a late payment.
Hiring outside California? Check rules for other states.
Independent Contractor Laws by State →Not sure yet? Run the audit above.
Two minutes tells you which test applies and whether your contract is exposed — before it becomes a $25,000 problem.
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