Work Status Classification in California – Independent Contractor/Employee

Legally reviewed By Scott Glovsky in Employment Law

At the end of 2021, the Department of Labor found that almost 60,000 employees across California were misclassified. Misclassifying employees is much more than just a paperwork error. If your work status has been misclassified, you may be subject to adverse consequences affecting your hours, your paycheck, and your rights.

Misclassification can affect your overtime, meal breaks, benefits, and even your job protections. Employers may believe they have their workers properly classified until a wage claim or audit proves otherwise. 

In some cases, misclassification is deliberate, in an attempt to avoid providing benefits for workers. While California has some of the strictest labor laws in the country, the AB 5 framework and evolving court decisions have made the line between independent contractor, exempt, and non-exempt status more complex than ever.

As a California worker, it is essential that you understand how job classifications work to determine whether you are receiving the full pay and benefits you deserve. 

If you believe your employer has misclassified your work status, it could be time to speak with a knowledgeable employment lawyer from the Law Offices of Scott Glovsky. We will help you determine whether your work status has been misclassified and the best course of action.

Contact us online or call us at 626-243-5598 to speak with a qualified employment lawyer and get answers today.

Why Does California Worker Classification Matter?

California worker classification determines whether you are an employee or an independent contractor, and whether you are an exempt or non-exempt employee. These distinctions directly impact your entitlement to minimum wage, overtime pay, workers’ compensation in the event you are injured at work, and unemployment benefits. Classification is crucial in determining tax liabilities and legal protection for workers. More specifically:

• Employees in California are entitled to minimum wage, overtime pay, meal/rest breaks, workers’ compensation, and unemployment insurance, none of which are provided to independent contractors. 
• Employees pay less in payroll taxes compared to independent contractors; misclassifying workers can lead to unpaid taxes as well as severe financial penalties, interest, and fines for employers. 
• Employees are covered by employer insurance, while independent contractors must provide their own insurance, taxes, and licenses. 

What Rights Do Independent Contractors Not Receive?

Independent contractors do not receive employee benefits like health insurance, retirement plans, or paid leave. There are no wage-and-hour protections normally covered under the Fair Labor Standards Act (FLSA).  Nor do independent contractors receive unemployment insurance, workers’ compensation, or minimum wage and overtime pay. There is no “safety net” for independent contractors who are injured on the job. 

Independent contractors are responsible for their own taxes and all business expenses. Employers do not withhold income taxes or pay the employer portion of Social Security and Medicare taxes, leaving the contractor to pay self-employment tax. Legal protections generally afforded to employees under the Americans with Disabilities Act (ADA) or the Family and Medical Leave Act (FMLA) do not extend to independent contractors, who have limited recourse against discrimination or workplace safety violations. 

Exempt vs. Non-Exempt Employees

In addition to independent contractor vs. employee, employees may be classified as exempt or non-exempt employees. California law tends to be stricter than federal law regarding the classification of exempt and non-exempt employees. The primary differences between exempt and non-exempt employees are:

• Exempt employees are not entitled to overtime pay (regardless of actual hours worked), while non-exempt employees are entitled to time and a half or double time when they work overtime (more than 8 hours a day or 40 hours a week).
• Exempt employees must receive an annual state minimum wage as salary, while non-exempt employees receive an hourly state minimum wage. The 2026 minimum annual salary threshold for exempt employees in California varies by the specific type of employee, but is at least two times the state minimum wage for full-time employment. There are exemptions for various types of employees including executive, administrative and professional roles as well as computer science professionals, licensed physicians, and surgeons, commissioned sales employees, and others.
• Meal and rest breaks are strictly mandated for non-exempt employees, while they are not required by law for exempt employees. Non-exempt employees must receive a 30-minute unpaid meal break if they work more than five hours per day, and a paid 10-minute rest break for every four hours worked.  
• An exempt employee must perform more than 50 percent of their job duties in a professional/administrative/executive capacity, which requires “discretion and independent judgment.” Non-exempt employees perform routine, manual, or clerical duties. Recordkeeping for exempt employees is much less strict than for non-exempt employees, who must precisely track hours worked. 

Job titles alone do not define employment status; the actual daily job duties determine whether an employee is truly exempt. An exempt employee must frequently make decisions regarding significant matters; in other words, independent judgment is required. 

What is the California AB 5 Test?

In 2020, California Assembly Bill 5 (AB 5) established a strict legal standard to classify workers as employees rather than independent contractors. The ABC test presumes workers are employees unless they operate an independent business that makes them free from the company’s control and perform work outside the company’s usual business. To be classified as an independent contractor, a worker must meet all three of the following conditions:

• “A” is for autonomy, asking whether the worker is free from control and discretion as they perform their work, both contractually and in reality. 
• “B” is for business distinction, asking whether the worker performs tasks that are outside the usual course of the hiring entity’s business. 
• “C” is for customary engagement, asking whether the worker is generally engaged in an independently established trade, occupation, or business that is the same as the work being performed. 

AB 5 severely impacted gig-economy companies like Uber and Lyft, whose industries rely on independent contractors. This resulted in California’s Proposition 22 being passed in 2020, following the passage of AB 5, which created specific exemptions for app-based ride-share and delivery drivers, enabling them to remain independent contractors.  

Are There Exceptions to the AB 5 Test?

Numerous exceptions to the ABC test in California exist, as AB 5 was amended by AB 2257 and other legislation to exempt specific industries and professions. Some of the most common exceptions to AB 5 include:

• Lawyers, doctors, dentists, architects, engineers, veterinarians, psychologists, accountants, and other licensed professionals. 
• Freelance photographers, photojournalists, newspaper cartoonists, writers, editors, content producers, and other creative professionals. 
• Commercial fishermen, direct salespeople, and certain insurance/financial services field representatives. 
• Certified landscape architects, licensed real estate appraisers, home inspectors, registered professional foresters, and certain other specialized services. 
• Musicians, musical producers, vocalists, single-engagement live performances, and other music/performing arts. 

Business-to-Business (B2B), which is a contract between two businesses, is also exempt, provided it meets specific criteria, such as that the business service provider is free from control and provides services directly to the contracting business rather than to its customers. 

What is the Borello Test for AB 5 Exceptions?

The California Borello test was established in S.G. Borello & Sons, Inc. v. Department of Industrial Relations in 1989. The Borello test determines independent contractor status when the stricter ABC test is exempt under AB 5. The Borello test focuses on the hiring entity’s right to control the manner and means of work. In other words, does the hiring entity have the right to control the manner and means by which the desired result is accomplished? Further questions under the Borello test include:

• Is the worker engaged in a distinct occupation or business that is separate from the hiring entity?
• Does the worker supply his or her own tools, instruments, and place of work?
• Are specialized skills required for the job?
• Is payment to the worker by time or by the job?
• Does either party believe an employer-employee relationship exists?
• Can the hiring entity terminate the worker at will, without cause?

If a profession qualifies for an exemption under AB 5, the legal standard for classification shifts from the strict ABC test back to the more flexible Borello test, which is, in short, the “right to control.” The right to control asks whether the employer has the right to discharge at will. Equally important is whether the worker has a substantial investment in their own equipment, materials, or place of work, and whether the service requires special skills or expertise. Finally, the Borello test asks whether the worker’s profit or loss depends on their own managerial skills.  

What Are Some of the Most Common Misclassification Scenarios for California Workers?

The most common misclassification scenario for California workers includes employee vs. independent contractor classification. Unfortunately, many workers who should be classified as employees are labeled independent contractors, usually for the benefit of the hiring company. The employer labels the worker as a 1099 independent contractor to avoid paying overtime, minimum wage, and/or benefits, yet the company controls the worker’s schedule, provides necessary tools, and the worker performs core business functions with no employee protections. Businesses also avoid payroll taxes, workers’ compensation, and unemployment insurance by misclassifying an employee as an independent contractor. 

Salaried employees are sometimes incorrectly labeled as exempt from overtime pay. Simply receiving a salary does not automatically make an employee exempt. If the employee does not also meet specific professional, executive, or administrative duties, they are non-exempt and owed overtime pay for any time over 8 hours a day or 40 hours a week. 

Misclassification is more widespread across certain industries. The construction industry is notorious for labeling laborers as contractors; the transportation industry often mislabels truck drivers as independent contractors; and the cleaning/janitorial industry labels workers as independent contractors when they are clearly employees under the ABC test. While all industries have the potential to misclassify workers, trucking, construction, janitorial, and healthcare (home health aides and nurses) are the most likely to do so. 

How Do You Know if You Are a Misclassified Worker?

If you are paid a flat fee or receive a 1099, but your employer controls your schedule and methods and requires you to work only for them, then you have been misclassified as an independent contractor. If you have been classified as exempt but are required to follow strict minute-by-minute instructions (similar to an hourly worker), then you have likely been misclassified. If you are classified as exempt, but have had your pay reduced or deducted for missing a few hours, then you have been misclassified. If your company provides tools and equipment and reimburses expenses, then you should not be classified as an independent contractor. Just because you signed a contract, work remotely, or receive a 1099 does not necessarily mean that you are properly classified as an independent contractor. In short, the “red flags” that show your worker status has been misclassified include:

• Your employer sets your hours, requires you to work on-site, or dictates exactly how tasks must be performed. 
• Your employer has trained you. 
• You work for only one client and are paid hourly or on a fixed salary rather than per project. 
• You cannot hire your own assistants.
• You receive health insurance or paid leave. 
• You use company-supplied equipment.
• You were forced to sign an independent contractor agreement, yet your day-to-day role is the same as that of company employees. 

What Can You Do If You Believe Your Work Status Has Been Misclassified?

First, you are not required to take your employer’s word for your employment classification. For example, the employer may say, “You signed a contractor agreement.” Even if this is true, contracts do not override state law. Your employer could say, “You are salaried, so you are not entitled to overtime pay.” The law says that salary does not necessarily equal exempt status. Your employer may say that everyone in this particular role is an independent contractor. True or not, industry practices do not equal legality.  Your employer may tell you that you have “flexibility,” which makes you an independent contractor. Flexibility on its own does not meet the ABC test. 

If you believe your work status has been misclassified (such as independent contractor rather than employee or exempt employee rather than non-exempt employee), you should carefully document any communication with your employer regarding this issue. You should also document your work schedule, tasks, pay stubs, and any emails or messages that show the company exercises control over your work. You can then file a complaint with the DOL Wage and Hour Division (1-866-487-9243), and/or file Form SS-8 with the IRS to request an official determination of your worker status. 

You can report the misclassification to the California Labor Commissioner’s Office (Division of Labor Standards Enforcement) to file a wage claim or call the Labor Enforcement Task Force (855-297-5322) for widespread violations. You can also report to the Employment Development Department, or you can file a lawsuit through a private employment attorney.  

Can I Recover Unpaid Wages if My Employment Status Has Been Misclassified?

If your employer has misclassified your worker status, you can potentially recover unpaid minimum wage, overtime, meal/rest break premiums (one hour of pay for each meal break missed and 30 minutes for each rest break missed), business expense reimbursements, and interest. You may also receive “waiting time” penalties (up to 30 days of pay) if you were fired or quit, along with compensation for lost benefits and attorney fees. If you were misclassified as an independent contractor, you may receive reimbursement for costs incurred to perform your job, such as fuel, tools, phone, and vehicle maintenance.  

What Are the Legal Consequences for Employers Who Misclassify Workers?

If a California employer is found to have willfully classified workers as independent contractors rather than employees, they could be liable for civil fines of $5,000-$25,000 per violation. Intentional misclassification can even result in up to one year in jail. Employers can also face liability for the following:

• Back wages and unpaid benefits, including unpaid minimum wages, overtime compensation, business expenses, and premiums for missed meal and rest breaks. 
• Unpaid payroll taxes, workers’ compensation premiums, and unemployment insurance contributions. 
• If waiting time penalties are not paid upon termination, employers may face penalties of up to a full day’s wages for each day payment is delayed, up to 30 days. 
• Employers may be required to post information about their violations on their company website. 
• Companies that violate employment laws can be banned from future government contracts.

How Can the Law Offices of Scott Glovsky Help with Your Employment Misclassification Issue?

In California, even small missteps in worker classification can result in lost wages and protections. If you’ve been labeled as an independent contractor or an exempt employee but your job does not match the legal requirements, you may be entitled to unpaid wages, overtime, and penalties. You should never assume that your employer’s label is correct. Speaking with an experienced California employment attorney from the Law Offices of Scott Glovsky can help you evaluate your situation and protect your rights. A legal review can help you assess your situation, explain your options, and develop a strategy. Contact the Law Offices of Scott Glovsky online or call 626-243-5598 today.