1099 or W-2? How California's ABC test really works

A 1099 is a tax form, not a legal status. California decides whether you are an employee by asking a very different question than your employer's payroll department does, and it asks that question with its thumb on the scale in your favor. Cal. Lab. Code § 2775 states the presumption plainly: a person providing labor or services for remuneration is an employee unless the hiring entity proves otherwise.

Prong A: freedom from control and direction

Prong A asks whether you were free from the hiring entity's control and direction in performing the work, both under the contract and in fact. Cal. Lab. Code § 2775(b)(1)(A) tracks the language the California Supreme Court used in Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018), which drew the standard from the state's wage orders rather than from common-law agency tests.

• Set schedules, assigned shifts, or required check-in and check-out times — control, under Cal. Lab. Code § 2775(b)(1)(A).
• Mandatory uniforms, branded vehicles, or scripts you must follow.
• Route, sequence, or dispatch assigned by the company rather than chosen by you.
• Company apps that track your location, require photos, or grade your speed.
• Discipline: warnings, deactivation, or being taken off the schedule for refusing work.

Note what prong A does not require. The older multi-factor analysis of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989) weighed control alongside a list of secondary factors and often let businesses argue their way to contractor status. Cal. Lab. Code § 2775 replaced that balancing act for most occupations with three prongs the business must satisfy in full.

Prong B: outside the usual course of the business

Prong B is where most misclassification defenses die. Cal. Lab. Code § 2775(b)(1)(B) requires that the work you perform be outside the usual course of the hiring entity's business. A restoration company's water-damage technician, a plumbing company's plumber, a delivery company's driver, and a salon's stylist are all doing the very thing the business sells.

Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) used the now-familiar illustration: a retail store that hires an outside plumber to fix a leak, or an electrician to install a line, is buying work outside its usual course of business; a clothing manufacturer that hires seamstresses to sew garments from home is not.

Prong C: an independently established trade

Prong C, at Cal. Lab. Code § 2775(b)(1)(C), asks whether you are customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Courts look for the ordinary markers of a real business: your own clients, your own advertising, your own license or bond, your own tools and insurance, and the practical freedom to take work elsewhere.

Being told you are 'your own boss' does not create an independent business. Neither does signing a contract that recites independent-contractor status; Cal. Lab. Code § 2775 applies to the arrangement 'in fact,' and Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) rejected label-driven analysis.

The exemptions: where Borello still governs

The Legislature carved out a long list of occupations and relationships, most of them added by AB 2257 and codified at Cal. Lab. Code § 2776 through Cal. Lab. Code § 2784. When an exemption applies, the ABC test is set aside and the older analysis of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, 48 Cal. 3d 341 (1989) decides the question instead — which still frequently produces employee status when the company controls the work.

• Bona fide business-to-business contracting relationships, subject to the twelve conditions in Cal. Lab. Code § 2776.
• Certain professional services — including some marketing, HR, travel, graphic design, photography, and freelance writing work — under Cal. Lab. Code § 2778.
• Licensed professionals such as lawyers, architects, engineers, accountants, and private investigators under Cal. Lab. Code § 2783.
• Construction subcontracting that meets every requirement of Cal. Lab. Code § 2781, including a valid contractor's license.
• Referral-agency arrangements meeting the conditions of Cal. Lab. Code § 2777.

How federal law compares

Federal law is looser. The U.S. Department of Labor applies an economic-reality analysis under 29 C.F.R. Part 795, weighing opportunity for profit or loss, investment, permanence, control, whether the work is integral to the business, and skill and initiative. California's ABC test protects more workers, so a Southern California worker generally sues under state law and adds a federal overtime claim under 29 U.S.C. § 207(a) where it helps.

What proof looks like

Because Cal. Lab. Code § 2775 puts the burden on the company, your job is to document control and hours. Save the dispatch texts, the schedule screenshots, the app notifications, the rate sheets, the required-training emails, and the invoices you were told to submit. Cal. Lab. Code § 226 requires employers to give employees itemized wage statements; if you never received one, that absence is itself evidence of how you were treated.

Where the employer kept no records, the burden shifts in practice. Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442 (2016) allowed workers to prove hours with representative evidence when the employer failed to keep the records the law required — a rule that matters enormously to misclassified workers, who are usually never clocked in at all.

What a finding of misclassification is worth

Once you are an employee, the wage code applies retroactively to your whole period of work: daily and weekly overtime under Cal. Lab. Code § 510, meal and rest premiums under Cal. Lab. Code § 226.7, business-expense reimbursement including mileage and phone use under Cal. Lab. Code § 2802, itemized-wage-statement penalties under Cal. Lab. Code § 226, and waiting-time penalties of up to thirty days' wages under Cal. Lab. Code § 203 if you have already left.

Willful misclassification carries its own civil penalty of $5,000 to $15,000 per violation, rising to $10,000 to $25,000 for a pattern or practice, under Cal. Lab. Code § 226.8. Cal. Lab. Code § 2753 extends liability to consultants who knowingly advise an employer to misclassify.