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AB5 is California Assembly Bill 5, signed in 2019 and effective January 1, 2020, that codified and expanded the "ABC test" for deciding whether a worker is an employee or an independent contractor under California law. Under AB5, every worker is presumed to be an employee unless the hiring entity can prove all three ABC prongs: that the worker is free from the company's control, performs work outside the company's usual business, and is customarily engaged in an independent trade. The law applies to work physically performed in California regardless of where the hiring company is headquartered, making it a national concern for any enterprise using California-based contractors. AB5 includes numerous occupational exemptions—for certain licensed professionals and qualifying business-to-business relationships—and its impact on gig platforms drove the passage of Proposition 22 in 2020, which carved out app-based drivers. In practice, AB5 dramatically raised the misclassification risk and cost of relying on independent contractors in California.
AB5 flips the default assumption: a worker is treated as an employee unless the hiring company can affirmatively prove all three prongs of the ABC test. Failing even one prong means the worker is legally an employee, with all the wage, tax, and benefit obligations that follow.
Prong B is the hardest to satisfy: if a contractor does work central to what the company sells, the relationship almost always fails and defaults to employment. This is a far stricter standard than the older common law test, which weighed many factors with no single one being decisive.
Before AB5, most California classification questions were decided under the multi-factor common law (or Borello) test. AB5 replaced that flexible balancing act with a rigid three-part standard for most workers.
| Feature | ABC Test (AB5) | Common Law Test |
|---|---|---|
| Default status | Presumed employee | No presumption |
| Standard to pass | Must satisfy all 3 prongs | Balance of many factors |
| Burden of proof | On the hiring entity | Case-by-case |
| Predictability | High (pass/fail) | Lower (fact-dependent) |
Because AB5 carries specific exemptions, some qualifying professions and B2B relationships still fall back to the common law test—which is why classification analysis has to be done role by role, not company-wide.
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Book a Demo AB5 significantly increased the exposure for companies that get classification wrong. A misclassified worker can trigger back wages, overtime, unpaid payroll taxes, penalties, and benefit liabilities—and California allows enforcement by both regulators and workers.
Where AB5 bites hardest
The safest way to eliminate this risk is to properly engage the worker as a W-2 employee. See the difference between a 1099 worker and a W-2 employee, and the broader topic of worker misclassification.
AB5 turns worker classification into an operational risk that has to be managed before every engagement—not discovered after an audit. WorkGenius removes that burden by assessing each worker's classification up front and taking on the compliance liability directly.
The result is access to California talent without inheriting AB5 exposure. Learn more about workforce compliance and how an Employer of Record shifts classification risk off your books.
Yes. AB5 applies to work physically performed in California regardless of where the hiring company is headquartered. An enterprise based in another state that engages a California-based independent contractor is still subject to the ABC test and its misclassification penalties.
AB5 is the 2020 law that codified the ABC test and broadly presumes workers are employees. Proposition 22, passed by California voters in 2020, was the gig-economy response that carved out app-based rideshare and delivery drivers, allowing them to remain independent contractors under specific conditions. Prop 22 is a narrow exception; AB5 remains the general rule.
The hiring entity must prove all three prongs: (A) the worker is free from the company's control, (B) the work is outside the company's usual course of business, and (C) the worker is customarily engaged in an independent trade of the same nature. Failing any single prong means the worker is classified as an employee.
Yes. AB5 includes numerous occupational exemptions—covering certain licensed professionals and qualifying business-to-business contracting relationships. Exempt roles are typically evaluated under the older common law test instead. Each exemption has specific conditions, so companies should verify eligibility rather than assume it applies.
Misclassification can trigger back wages, unpaid overtime, unpaid payroll taxes, penalties, and benefit liabilities, with enforcement by both California regulators and workers. Engaging the person as a W-2 employee—directly or through an Employer of Record—eliminates this exposure.
Explore more concepts in our workforce glossary
A strict, three-part worker-classification test that presumes a worker is an employee unless all three ABC prongs are met.
Learn moreThe error of treating someone who legally qualifies as an employee as an independent contractor — exposing companies to back taxes, penalties, and retroactive benefits liability.
Learn moreA third-party organization that legally employs workers on your behalf, handling all payroll, taxes, benefits, and compliance while you direct the work.
Learn moreEnsuring all worker engagements meet legal, regulatory, and policy requirements across classification, contracts, taxes, and labor laws.
Learn moreWorkGenius combines AI-powered talent matching with enterprise-grade compliance. Source, onboard, manage, and pay freelancers globally — all from one platform.
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