⚖️ California Labor Law · Contractor Status
What Is an Independent Contractor in California?
California has the strictest independent contractor rules in the United States. Whether you’re a CSLB-licensed contractor or hiring subs, understanding AB5 and the ABC test is essential.
📞 Free Consultation: (818) 679-4451The California ABC Test for Independent Contractors
Under California Assembly Bill 5 (AB5), a worker is presumed to be an employee unless the hiring business can prove ALL three parts of the ABC test:
A — Free from Control
The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact.
B — Outside Usual Course of Business
The worker performs work that is outside the usual course of the hiring entity’s business. For contractors, this typically means the sub works in a different trade or specialty.
C — Independently Established Business
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. For CSLB contractors, having their own license strongly supports this.
CSLB Contractors and Independent Contractor Status
Licensed CSLB contractors have a significant advantage: holding an active CSLB license is strong evidence of being an independently established business (Part C of the ABC test). The California Contractors State License Board explicitly recognizes licensed contractors as independent businesses.
However, having a CSLB license alone does not automatically make someone an independent contractor. The work must also meet Parts A and B of the ABC test. A general contractor hiring a licensed electrician to do electrical work on a job site typically satisfies all three parts.
Tax Implications of Being an Independent Contractor in California
Self-Employment Tax
You pay both the employer and employee portions of Social Security and Medicare — 15.3% on net earnings up to $168,600.
Quarterly Estimated Taxes
No employer withholds taxes for you. You must pay federal and California estimated taxes four times per year to avoid underpayment penalties.
Business Deductions
You can deduct vehicle mileage, tools, equipment, insurance, licensing fees, phone, and more to reduce your taxable income significantly.
California FTB Filing
Report your contractor income on Schedule C (federal) and California Schedule C. California does not conform to all federal deductions, so work with a CA-based bookkeeper.
Frequently Asked Questions
Does having a CSLB license make me an independent contractor?
It strongly supports it, but doesn’t guarantee it. The work must also meet the ABC test — you must be free from direction and working outside the normal business scope of whoever hired you. Having your own clients, setting your own hours, and carrying your own insurance all strengthen IC status.
What’s the difference between an employee and an independent contractor for tax purposes?
Employees receive a W-2, have taxes withheld automatically, and the employer pays half of FICA taxes. Independent contractors receive a 1099-NEC, pay their own taxes quarterly, and owe the full 15.3% self-employment tax — but they can deduct business expenses that employees cannot.
Can Bookkeeping Champs help me structure my contractor business correctly?
Yes — we help California contractors set up the right business structure (sole prop, LLC, S-Corp), understand their tax obligations, and stay compliant with both IRS and California FTB requirements. Call us for a free consultation.
Questions About Your California Contractor Status?
Bookkeeping Champs helps CSLB-licensed contractors in Los Angeles and Ventura County navigate California’s complex contractor tax and compliance rules.
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