Classifying workers as independent contractors can offer flexibility—but in California, getting it wrong can lead to steep penalties. With strict standards like the ABC test under AB 5, many businesses unknowingly misclassify workers, exposing themselves to audits, back pay, and lawsuits.

Here are some key points to consider if you’re using or planning to use independent contractors:

1. The ABC Test is the Default Standard
California presumes that a worker is an employee unless all three conditions of the ABC test are met. Many roles—especially those in your core business—will fail this test.

2. Penalties Can Add Up Quickly
Misclassification can result in unpaid wages, payroll tax liability, civil penalties, and even class-action lawsuits. It’s not just one fine—it’s everything that comes with it.

3. Control = Employment
Don’t ask about disabilities, medical conditions, or even vaccination status before making an offer. Doing so may violate ADA or FEHA protections.

4. No One is Exempt from Review
Small businesses, nonprofits, and even startups can be audited. Don’t assume you’re under the radar.

5. Written Agreements Aren’t Bulletproof
Having an independent contractor agreement helps—but it won’t override legal definitions. Courts and agencies look at the reality of the working relationship, not just what’s on paper.

Unsure if Your Contractors Are Properly Classified?
DP Human Capital Management can help you evaluate your contractor relationships and minimize your compliance risk. Schedule a review today and avoid costly misclassification mistakes.

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