Hiring independent contractors can seem like a smart way to control costs and maintain flexibility — but California’s AB5 law has made misclassification one of the riskiest mistakes a business can make. Get it wrong, and you could face massive back-tax bills, penalties, and legal fees that threaten your company’s survival.

Here are five contractor classification mistakes that could cost everything:

1. Relying on Outdated Classification Tests
California’s ABC test is much stricter than federal guidelines. Work that was properly classified as contractor work in other states may not qualify in California.

2. Controlling How Work Gets Done
If you set schedules, provide training, or dictate work methods, you’re likely creating an employment relationship regardless of your contract language.

3. Integrating Contractors into Core Business Functions
Contractors must perform work outside your usual business operations. Having “contractors” do the same work as employees is a red flag for misclassification.

4. Long-Term Contractor Relationships
Ongoing, indefinite relationships often indicate employment. True contractor relationships should be project-based with clear end dates.

5. Providing Employee-Like Benefits or Equipment
Offering contractors company email, equipment, office space, or benefits suggests an employment relationship that could trigger reclassification.

Need Contractor Classification Clarity?
DP Human Capital Management can help you properly classify your workers and avoid the devastating costs of misclassification under California law. Don’t let contractor confusion destroy your business.

Schedule a worker classification audit today.