W-2 or 1099? California Implements the ‘ABC Test’ to Guide Employers

December 27, 2018

As the new year begins, many employers consider expanding their team. In the settlement of the California Supreme Court case “Dynamex Operations West, Inc. v. Superior Court,” it is imperative to understand the difference in classification between an employee and an independent contractor.

The State has developed the “ABC Test” to guide employers as they evaluate their staffing needs, which is as follows:

  1. Control. Do you control and direct the individual hired as to the work required to be performed, per contract and in fact?
  2. Outside Work. Is the worker reliant on your employment only? For example, does the worker maintain outside work other than what you are providing to them?
  3. Dependent Trade. Does the worker rely on the trade and/or occupation you are involved in? This means, does the worker not regularly work as an independent contractor in a similar business?

If the answers to these basic questions are yes, then you have likely hired an employee. Understanding this classification is crucial for determining the employer’s payroll tax liabilities and other benefits.

The Employment Development Department recommends the use of their DE 231 worksheet for specifics.

If you are still uncertain or need further guidance, contact Osborne Rincon CPAs.



By: Veronica Barajas, Osborne Rincon CPAs

Veronica Barajas has a Master’s Degree in Accountancy and has worked in private accounting for over 15 years, as well as served as a controller for 10 years. Osborne Rincon is one of the oldest and most respected full-service accounting firms in the Coachella Valley. To learn more, call (760) 777-7805 or go to www.OsborneRincon.com.

Last modified: December 27, 2018

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