AB5 and California Contractors —
Who Can You Legally Use
as a 1099 Subcontractor?

What Is AB5?

California Assembly Bill 5 (AB5), effective January 1, 2020, codified the "ABC test" for determining whether a worker is an employee or an independent contractor. The law was designed to address misclassification — situations where workers were called independent contractors but were effectively functioning as employees.

For contractors, AB5 has real consequences. Many common arrangements that were previously treated as 1099 subcontractor relationships are now legally considered employment.

The ABC Test — All Three Must Be True

Under AB5, a worker is an INDEPENDENT CONTRACTOR only if ALL THREE of the following conditions are met:

What This Means for Contractors in Practice

The critical test is Part B. If a worker does the same type of work as your primary business, they almost certainly cannot be classified as a 1099 subcontractor under AB5 — regardless of what your contract says.

Examples:

• A general contractor (B) hiring day laborers to frame a wall → those workers are likely employees
• An electrician (C-10) hiring another electrician to help on a job → likely an employee relationship
• A plumber (C-36) hiring a licensed electrician (C-10) for electrical work on the same project → this may qualify as a legitimate sub relationship since the trades are different
• Any contractor hiring a licensed subcontractor who has their own CSLB license, their own clients, and operates independently → more likely to pass Part C

The CSLB Licensed Sub Exception

The most important exception for contractors: if the subcontractor holds their own active CSLB license, operates an independent business, and performs work for multiple clients — they have a much stronger case for legitimate independent contractor status. This is why verifying your subs' CSLB license status before every job is critical — it's not just about their qualifications, it's about your legal exposure.

What Happens If You Misclassify a Worker?

• Back taxes and penalties — you may owe the employer's share of payroll taxes, Social Security, and Medicare going back years
• EDD audit — California's Employment Development Department actively audits for misclassification
• Workers' comp liability — if a misclassified worker is injured on your job site, you may be personally liable for their medical costs
• Civil lawsuits — misclassified workers can sue for unpaid wages, benefits, and penalties
• CSLB action — hiring unlicensed subs without workers' comp is a CSLB violation

The Practical Checklist Before Using Any Sub

• Verify their CSLB license is active at cslb.ca.gov
• Confirm their license covers the scope of work
• Get a Certificate of Liability Insurance naming your company as additional insured
• Get their Certificate of Workers' Compensation Insurance
• Run the ABC test — can they genuinely pass all three parts?
• Get a signed subcontractor agreement
• Collect their W-9 if you'll pay them $600+ this year

Sources: California AB5 (Assembly Bill 5, 2019); California Labor Code §2775 et seq. This is not legal advice. Consult a California employment attorney for your specific situation.