Many California businesses hire contractors in addition to regular employees. Companies may hire contractors for specific projects or defined periods of time, often to do work that the businesses do not normally do.

Contractors work for themselves, and even while working on a contract job they perform the work as they see fit, with minimal direction and control from the company that hired them. In 2020, a law called AB 5 clarified the differences between employees and independent contractors.

Contract workers must meet three key conditions

Contractors are free from the control of the hiring company because they are essentially self-employed. They perform work that is different from the work the employees of the hiring business usually does. And contractors routinely perform the type of work the business is hiring them to do.

Some workers are exempt from AB 5

AB 5 exempts certain professions. Investment advisors, barbers, cosmetologists, physicians, dentists, attorneys, engineers and accountants do not fall under the requirements of AB 5.

Steep penalties apply when companies misclassify workers

Businesses that misclassify employees as independent contractors may incur liability for labor violations such as unpaid wages, overtime and meal breaks. Each violation may result in penalties of up to $15,000. Employers that demonstrate a pattern of misclassification of employees as independent contractors may incur penalties of up to $25,000 per violation.


California employers must take special care to avoid hiring independent contractors and treating them like regular employees. They must understand all of the conditions independent contractors must meet to qualify as contractors. Misclassification can be an expensive mistake that costs money and can damage a business’s reputation.