AB5 and the ABC Test Explained
California starts from the assumption that anyone you pay to work is your employee. The ABC test is how a business proves otherwise, and it has to win on all three parts.
Under AB5, a California worker is presumed to be an employee. To treat someone as an independent contractor, the business has to prove all three parts of the ABC test: (A) the worker is free from its control, (B) the work is outside the usual course of its business and (C) the worker runs an independent business doing that kind of work. Failing any one part makes the worker an employee, unless a specific exemption applies.
Where AB5 came from
In 2018, the California Supreme Court adopted the ABC test for the state's wage orders in Dynamex Operations West v. Superior Court. AB 5 (2019) wrote the test into the Labor Code and extended it to the Unemployment Insurance Code, which covers unemployment and disability insurance. AB 2257 (2020) rewrote many of the exemptions. The rules now sit in Labor Code 2775 to 2787.
The burden is on the hiring business. A signed contractor agreement, a 1099 or the worker's own preference doesn't decide it.
Part A: free from control
The worker must be free from the hiring entity's control and direction in how the work is done, both under the contract and in practice. Signs of control include setting the worker's schedule, requiring specific methods, training them like staff, reviewing their performance or requiring them to wear a uniform. A business can still set deadlines and specify the result it wants.
Part B: outside the usual course of business
The work must be outside the usual course of the hiring entity's business. This is the part that trips up most businesses. The courts' example: a retailer that hires an outside plumber to fix a leak in its restroom passes, because plumbing isn't what the store does. A clothing company that hires home-based seamstresses to sew garments from its patterns fails, because making clothes is its business.
Ask whether the worker does the thing customers pay the business for. If the answer is yes, part B almost always fails.
Part C: an independent business
The worker must be customarily engaged in an independently established trade, occupation or business of the same nature as the work. Evidence includes having their own business license, insurance, website or advertising, their own tools, several clients and the ability to set their own rates. Someone who works only for one company and would be out of work without it usually fails part C.
The exemptions
AB5 carves out many occupations and relationships. For these, the older Borello test applies instead: a multi-factor analysis centered on who has the right to control how the work is done. The main groups:
- Licensed professionals: physicians, surgeons, dentists, lawyers, architects, engineers, private investigators, accountants and insurance agents, among others.
- Professional services: marketing, human resources administration, travel agents, graphic designers, grant writers, fine artists, freelance writers, editors, photographers and similar work, if the worker maintains a business location, has the right to set their own hours and rates, and meets other conditions.
- Business-to-business: a sole proprietor or business entity providing services to another business, if it meets 12 conditions, such as having its own business location, its own clients and a written contract.
- Construction subcontractors with a contractor's license and a written contract, and referral agencies that connect clients with service providers such as tutors or dog walkers.
- Real estate licensees, repossession agents and several other specific occupations.
An exemption doesn't make someone a contractor; it only switches the test. Under Borello, a worker the business controls closely is still an employee.
Gig drivers and Prop 22
App-based rideshare and delivery drivers are covered by Prop 22 rather than AB5. Voters approved it in 2020, and the California Supreme Court upheld it in July 2024. Companies can treat these drivers as independent contractors if they pay an earnings floor for engaged time, a per-mile expense amount and a health care stipend for drivers who work enough hours. Our Prop 22 earnings calculator shows the minimum pay.
What's at stake
A misclassified worker is owed everything an employee gets: minimum wage, overtime, meal and rest break premiums, paid sick leave, reimbursed business expenses, workers' compensation coverage, and unemployment and disability insurance. The business owes the unpaid wages, payroll taxes and interest. Willful misclassification adds civil penalties of $5,000 to $15,000 per violation, or $10,000 to $25,000 for a pattern or practice (Labor Code 226.8). Workers can file with the Labor Commissioner or the EDD, or bring a PAGA claim.
For a worker, being classified as an employee also means the employer pays half of Social Security and Medicare taxes, instead of the worker paying the full self-employment tax.
Run your numbers
Our AB5 Independent Contractor Checker asks about each part of the ABC test and the main exemptions. If you work for yourself, the self-employment tax calculator shows what contractor status costs in taxes.
Frequently Asked Questions
What is the ABC test in California?
It is the test California uses to decide whether a worker is an employee or an independent contractor. A worker is presumed to be an employee unless the hiring business shows that (A) the worker is free from its control and direction, (B) the work is outside the usual course of its business, and (C) the worker is customarily engaged in an independently established business of the same kind.
Who is exempt from AB5?
Many occupations and business relationships are exempt from the ABC test, including licensed doctors, lawyers, accountants and insurance agents, many freelance writers, photographers, graphic designers and marketers, real estate agents, certain business-to-business arrangements and construction subcontractors that meet specific conditions. Exempt relationships use the older multi-factor Borello test instead.
Does AB5 apply to Uber and DoorDash drivers?
Mostly no. Prop 22, passed in 2020 and upheld by the California Supreme Court in 2024, lets app-based rideshare and delivery companies treat drivers as independent contractors if they provide an earnings floor and other benefits.
What is part B of the ABC test?
Part B asks whether the work is outside the usual course of the hiring company's business. It is usually the hardest part to meet: a plumber hired to fix a bakery's sink passes, but a cake decorator working for the same bakery does not.
What are the penalties for misclassifying a worker in California?
The business can owe back wages, overtime, meal and rest break premiums, expense reimbursement, unpaid payroll taxes and interest. Willful misclassification carries civil penalties of $5,000 to $15,000 per violation, or $10,000 to $25,000 for a pattern or practice.
This article is for general information only and is not legal advice. Worker classification turns on specific facts; talk to an employment attorney or the EDD about a particular arrangement.