Employee or contractor: what a California business owner is risking

Many owners put their helpers on a 1099 because it's simpler: no payroll taxes and no payroll reports. In California this is one of the most expensive mistakes you can make.

The ABC test

Since 2020, a worker in California is an employee unless all three conditions are met:
A — you don't control how and when they work;
B — their work is outside the usual course of your business;
C — they run their own independent business in that field.

Example: a front-desk administrator at a beauty salon paid on a 1099 almost always fails prong B.

What happens in an audit

The EDD assesses payroll taxes for every year involved, plus penalties and interest. The worker can also bring their own claims: overtime, meal and rest breaks, expense reimbursement.

When a 1099 really fits

A bookkeeper, a designer, a plumber with their own company and other clients: yes. Someone who works only for you, on your schedule and in your line of business: most likely not.

Want to check your contractors? Message me and we'll go through who can safely stay on a 1099 and who is better moved to payroll.