Classifying someone as an independent contractor can feel like the flexible, low-hassle option: no payroll taxes, no benefits, no overtime tracking. California applies one of the strictest tests in the country (the “ABC test”) to decide who really qualifies, and getting it wrong can mean back pay, penalties, and tax liability that adds up fast, sometimes retroactively across a worker's entire engagement.
The short version: if the person works under your direction, does work that's part of your normal business, and doesn't run an independent business of their own in that line of work, they're probably an employee, regardless of what the contract says or what either of you would prefer.
The ABC test isn't universal, though. AB 2257 carved out a long list of exceptions where the older, more flexible Borello multi-factor test applies instead: licensed professionals (attorneys, physicians, accountants, and others), genuine business-to-business contracting relationships, referral agencies, and several industry-specific categories. Falling into one of those categories isn't automatic protection, either: each exemption comes with its own detailed checklist, and a relationship that misses even one or two elements of it lands back under the stricter ABC test.
What you can do
Review your current contractor relationships against the ABC test, and check whether an AB 2257 exemption (licensed professional, genuine business-to-business relationship, and others) actually applies before assuming it does or doesn't.
Don't rely on a signed independent contractor agreement alone: the actual working relationship is what matters, not the paperwork, under either test.
When a role is genuinely borderline, including a claimed exemption, get an outside read before you commit to a classification, especially if the person will work for you long-term or exclusively.
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