Can I Use a 1099 Contractor in California? Here’s the Truth in 2025

The short answer? Yes, but you better be sure they qualify.

Thanks to California’s strict worker classification laws, many companies are realizing a tough truth: just because someone wants to be a 1099 doesn’t mean you can legally pay them that way.

This post breaks down what the law really says, what risk you’re actually carrying, and how to keep moving without freezing up every time someone says “independent contractor.”

First, What’s the Rule in California?

You’ve probably heard of the ABC test — California’s way of deciding who’s a contractor and who must be a W-2 employee.

To use a 1099 in California, all three of these must be true:

• A – They’re free from your control (you can’t manage how they work)

• B – They’re doing work that’s not part of your core business

• C – They run an independent business doing the same kind of work

If they fail any one of those, they’re considered a W-2 — and misclassifying them can get expensive, fast.

But wait, my contractor wants to stay 1099. Isn’t that enough?

Nope. The law doesn’t care if they’re asking to be 1099. In California, it’s not about preference — it’s about whether the facts line up with the ABC test.

If you’re paying someone regularly, giving them direction, or depending on them to deliver part of your core service? You’re probably on the hook for a W-2 relationship.

What are the risks if I get it wrong?

If you misclassify a worker in California, here’s what you’re risking:

• $5,000–$25,000+ in penalties per violation

• Back taxes, unpaid benefits, and retroactive payroll obligations

• Wage and hour violations (like missed meal and rest breaks)

• Individual lawsuits — even if you had a signed contractor agreement

• Class actions for failing to provide benefits, sick leave, health coverage, advancement opportunities, or raises

Even well-meaning companies get burned for not slowing down to check the setup. California doesn’t care if it was accidental — they care if it’s compliant.

So… can startups still work with 1099s at all?

Absolutely. But it has to be done right.

Here’s when using a 1099 usually works in California:

• You’re hiring a specialist for a specific project (e.g., marketing copywriter, freelance designer)

• Their work is clearly outside your day-to-day business

• They have other clients, their own business entity, and control over their schedule

• You’re not giving them login credentials, email addresses, or managing them like a team member

Still not sure? That’s where we come in.

What if I found them on Upwork or LinkedIn — does that change anything?

Great question — and no, it doesn’t.

Where you find them doesn’t matter. Even if they’re listed as a freelancer on Upwork, if you control the work, they’re doing core business activities, and they’re not truly independent? You’re still at risk.

Platforms like Upwork give the illusion of safety — but they don’t protect you if a misclassification claim is made. You’re still responsible.

How do I actually stay compliant?

Here’s what we do for clients every day:

• Review each 1099 engagement with the hiring manager and candidate

• Evaluate the relationship using the ABC test and other federal and state standards

• Give you a clear recommendation — and a documented decision trail

• If needed, we’ll convert them to a W-2 through our EOR platform (without disrupting your business)

Can I just keep paying them and deal with it later?

You could — but you’re building a pile of risk that grows with every pay period.

The better approach? Get ahead of it.

There’s no harm in reviewing the setup now. If they qualify, great — you’ve got peace of mind. If they don’t, we’ll help you pivot before you’re dealing with backpay, penalties, or an angry contractor with a lawyer.

Bottom Line

The days of “handshake contractor agreements” are over — especially in California.

But that doesn’t mean you can’t build flexible, agile teams. It just means you need to work with the right partners who know how to evaluate, document, and protect both sides of the relationship.

If you’re unsure about a 1099 setup, or just want a second look — we’ll run a compliance review, fast and free.

📩 Reach out to get started →